Why The New Home Sales Number Shows The Market Is Still Very Far From Normal

Earlier the NAR released the existing home sales data for January; here are a few more graphs …

Click on graph for larger image in new window.

This graph shows NSA monthly existing home sales for 2005 through 2010 (see Red column for Jan 2010).


Sales (NSA) in January 2010 were 7% higher than in January 2009, and slightly lower than in January 2008.

The second graph shows existing home sales (left axis) and new home sales (right axis) through January. I jokingly refer to this as the “distressing gap”.

The initial gap was caused by the flood of distressed sales. This kept existing home sales elevated, and depressed new home sales since builders couldn’t compete with the low prices of all the foreclosed properties.


The recent spike in existing home sales was due primarily to the first time homebuyer tax credit.

The following graph shows the same information as a ratio – existing home sales divided by new home sales – through January 2010.

This ratio is just off from the all time high in November when existing home sales were artificially boosted by the first time home buyer tax credit.

Eventually this ratio will return to the historical range of around 6 existing home sales per new home sale. Right now this graph shows that the housing market is far from normal.


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