New vs Existing Home Sale Gap

Calculated Risk posted this interesting chart showing the difference between the degree of pressure on Existing vs New Homes.

It raises an interesting quandry: On the one hand, new home sales contribute directly to GDP data. Ont he other hand, existing  homes sales are much larger percentage of the market.

Where I may diverge somewhat from CR is in whether New Home Sales have bottomed.  The volume will be a function of price. Ongoing job losses, increased foreclosures, and the offset by (pricey and only partially effective) tax credits will determine if prices are artificially propped up.

Builders looking to move New Homes at a heavily discounted price are sometimes constrained by other factors — bank financing, investor requirements, and recent (nearby) New Home buyers sometimes cause pricing issues. These can prevent builders from dropping prices to compete with local existing home sales — especially in areas where there have been mucho foreclosures.

The Distressing Gap


Chart courtesy of CR

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