by Calculated Risk on 4/23/2011 08:12:00 AM

From David Streitfeld at the NY Times: Builders of New Homes Seeing No Sign of Recovery

Builders and analysts say a long-term shift in behavior seems to be under way. Instead of wanting the biggest and the newest, even if it requires a long commute, buyers now demand something smaller, cheaper and, thanks to $4-a-gallon gas, as close to their jobs as possible. That often means buying a home out of foreclosure from a bank.

Four out of 10 sales of existing homes are foreclosures or otherwise distressed properties. Builders ... cannot compete despite chopping prices.

This has led to the "distressing gap" between new and existing home sales! Here is a repeat of the graph showing existing home sales (left axis) and new home sales (right axis). 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 graph gallery.

The gap is due mostly to the flood of distressed sales. This has kept existing home sales elevated, and depressed new home sales since builders can't compete with the low prices of all the foreclosed properties.

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 something close to this historical relationship.

Also - earlier this week I mentioned a possible change in sentiment toward homeownership - Streitfeld picked this up and I appreciate the mention!