Reply #19: Why Haven't Existing Home Sales Fallen Further? [View All]

[Demeter]

http://calculatedrisk.blogspot.com/2008/04/why-havent-existing-home-sales-fallen.html

The first graph compares New Home sales vs. Existing Home sales since January 1994.





Clearly new home sales have fallen faster than existing home sales.

Based on various reports, it appears new home builders cut their prices quicker than most existing home sellers. So why have new home sales fallen faster than existing home sales?

There could be a number of possible explanations:

Perhaps new homes were more overpriced than existing homes, so the larger price cuts haven't been enough to motivate buyers.

Or maybe there was more speculative buying in the new home market. During the boom, many buyers could put down 1% or less and hold a house for 6 to 9 months; essentially a call option on the house. But if that was the reason, wouldn't new home sales have increased quicker than existing home sales during the boom? It appears the ratio of sales tracked pretty closely from '94 through '05.

Or maybe all the REO sales (bank Real Estate Owned) are boosting the number of existing home transactions. Note: It is my understanding that banks taking possession of foreclosed properties are not counted in the NAR's existing home sales report, but the resale of REOs are counted.

Whatever the reason - and I'm always a little skeptical of the NAR's numbers - existing home sales are still above the normal range.

.....more at link....
This suggests that sales of existing homes could fall significantly more in 2008.