In Depth Analysis: CalculatedRisk Newsletter on Real Estate (Ad Free) Read it here.

Wednesday, March 23, 2011

Home Sales: Distressing Gap

by Calculated Risk on 3/23/2011 12:49:00 PM

Another update ... this graph shows existing home sales (left axis) and new home sales (right axis) through February. This graph starts in 1994, but the relationship has been fairly steady back to the '60s. Then along came the housing bubble and bust, and the "distressing gap" appeared (due mostly to distressed sales).

Distressing Gap Click on graph for larger image in graph gallery.

The gap is due mostly to the flood of distressed sales. This has kept existing home sales elevated, and depressed new home sales since builders can't compete with the low prices of all the foreclosed properties.

Note: it is important to note that existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.

In a few years - when the excess housing inventory is absorbed and the number of distressed sales has declined significantly - I expect existing home-to-new home sales to return to something close to this historical relationship.

Note: The National Association of Realtors (NAR) is working on a benchmark revision for existing home sales numbers. As I noted in January, this benchmarking is expected to result in significant downward revisions to sales estimates for the last few years - perhaps as much as 10% to 15% for 2009 and 2010. Even with these revisions, most of the following "distressing gap" will remain.

Existing Home sales for February:
February Existing Home Sales: 4.88 million SAAR, 8.6 months of supply
Existing Home Inventory decreases 1.2% Year over Year
Existing Home Sales and Inventory Graphs

New home sales for February:
New Home Sales Fall to Record Low in February
New Home Sales and Inventory Graphs