Why Did New Homes Sales Go Down When Existing Home Sales Improved?

The grim news from the government today was that sales of new homes are down 32.8 per cent from a year ago.  The government also said that new home sales had decline 0.6 per cent since April.  The inventory of new houses for sale now represents 10.2 months worth of sales, down slightly from the 10.8 months of inventory at this time last year.

The downtick in new home sales may surprise some people who noticed that existing home sales actually improved in May. Why are existing homes selling more than new homes?

In healthy economic times, the sales of new homes and existing homes tend to move together. In times of economic pain, they diverge. This is because foreclosure sales drive up sales of existing homes but don’t touch new homes. In short, what we’re seeing is the fallout from the mortgage crisis.

You should also keep in mind that the new home sales numbers are very uncertain. The margin of error is far greater than the actual variance, which means that we may just be listening to noise and thinking it’s a signal. What’s more, new home sales numbers are counted by contract and not by closings. This means that the buyers could still back out, and many most likely will if the economic conditions deteriorate further.

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