Conflicting media reports--Resale vs New
I’d like to provide some clarification for the many folks who seem confused over the seemingly conflicting media reports of new vs. existing home sales. Lets take the past 2 days as an example.
Yesterday, the media reported that existing home sales declined 5.7% in December—the 3rd consecutive month of declines (wow, that sure seems like bad news for the industry). Then today, we receive what seems to be a completely different story. This Bloomberg story reports that new home sales increased by 2.9% in December (wow, this sure sounds like good news for the economy). So which of these reports is accurate and what should you believe?
Technically folks, both of the reports are accurate. New home sales increased, and existing home sales decreased. What many folks don’t understand is the fact that the resale market is 6 times bigger than the new home market (~ 7 million resale homes per year vs. 1.2 million new home sales). Therefore, the number of resale home declines in December (-5.7% x 7M = 399,000/12 months= 33,250) carries 11 times the weight of the number of new home sale increases in December (+2.9% x 1.2M = 34,800/12 months = 2,900). So, the TOTAL overall decrease in the number of home sales over the previous month is: 33,250-2,900=30,350
Bottom Line: The Existing Home Resale market is the major indicator to watch. I believe the only reason new homes are still doing well is numerous builder incentives (low rates, closing deals, free upgrades, vacations, etc)
From what I’m seeing in the resale market, I think the overall market is on the downhill slide. Hopefully, we’ll be able to have a controlled decent rather than sliding off the cliff into oblivion.