by Calculated Risk on 12/24/2010 08:45:00 AM

Thanks to everyone for reading and providing me feedback!

Here is an update to a graph I've been posting for several years. This graph shows existing home sales (left axis) and new home sales (right axis) through November. This graph starts in 1994, but the relationship has been fairly steady back to the '60s. Then along came the housing bubble and bust, and the "distressing gap" appeared (due mostly to distressed sales).

Click on graph for larger image in new window.

Initially the 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 two spikes in existing home sales were due primarily to the homebuyer tax credits (the initial credit in 2009, followed by the 2nd credit in 2010). There were also two smaller bumps for new home sales related to the tax credits.

Note: it is important to note that existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.

In a few years - when the excess housing inventory is absorbed and the number of distressed sales has declined significantly - I expect existing home-to-new home sales to return to this historical relationship.

I've guessed before at the eventual levels: The median turnover for existing homes is just over 6% of all owner occupied homes per year, and with about 75 million owner occupied homes that would suggest close to 5 million sales per year (no one should expect existing home sales to be over 7 million units per year any time soon!). And that would suggest new home sales at just over 800 thousand per year when the market eventually recovers (not 1.2 or 1.3 million per year).

Best to all!