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Existing Home Sales Report vs the New Home Sales

Each month, real estate agents and brokers get two reports back to back: The Existing Home Sales Report and the New Home Sales Report.

While they sound like they are pretty much the same they are indeed drastically different.

The Existing Home Sales Report derives it's figures and data from The National Association of Realtors. It's based on exactly what you might think it is, the number of existing homes sold over a given period of time.
Existing home sales account for roughly 85% of all home sales.

The New Home Sales Report doesn't come from N.A.R. - it comes from the builders themselves.
It's what we call a fuzzy number.
It's actually the number of initial sales contracts signed over a period of time.
A contract is fine, but here's where the fuzzy comes in.
When will those houses be completed?
When will the buyers move in?
How many of those contracts go to completion (as in a funded loan)?
Would you believe 30 to 40 % of those contracts will drop out?
That's Financial Fuzzy-ness.

How many in the Existing Home Sales report will drop out?
Zero. They are real and hard numbers. They are actual completed sales.
See the difference?

Then there are the incentives.
Builders have a cashflow problem. They need to keep selling in order to keep building.
In the normal world if you have too much inventory you drop the price and the item sells.
Builders cannot do that. They have to offer incentives instead.

As the builder's inventory is presently very high, they are offering some unrealistic items.
Material upgrades like granite counters are the norm.
You may have heard about them throwing in new cars?
I've even seen copious amounts of cash back at closing.
The numbers the builders report DO NOT include these incentives.
More Fuzzy-ness.

While the existing market may also include seller incentives (cash to close, repair concessions) this is minor and often times reflects in the sales figures.

If 85% of all sales are existing, that means the New Homes account for only 15% of the market - right?

So new homes don't matter as much?
Not true, they do indeed.
But in a very different way.

New Homes and the building of new homes is an industry unto itself.
Building a new home requires labor and materials.
More new homes means more labor being put to work.
It means more demand for the building materials.
More new homes means building material suppliers are going to have better earnings, better revenue. Sell more New Homes and Home Depot makes more money.
The New Home Sales Report might be thought of as more of a gross economic sector report.

Sell an Existing Home and Home Depot makes nothing.
Existing Home Sales are more of an indicator of the housing market as it is now.
They put a value on the market conditions as they actually were last month.

So as you see these two reports hit the headlines each month, keep in mind where they come from and just how different the two really are.

By Diane Tuman

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  • Last edited October 12 2012
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