Distressed sales keep up a wide gap between resales and new orders

Source: Calculated Risk

The volume of distressed sales of residential properties as a percentage of total transactions is strong, and not likely to weaken so soon. Calculated Risk's Bill McBride updates a monthly horizontal analysis of the concurrent trend in existing home sales (which include distressed deals) and new home sales (orders). He writes, "The flood of distressed sales 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. I expect this gap to close over the next few years once the number of distressed sales starts to decline." Over the next few years.

Then along came the housing bubble and bust, and the "distressing gap" appeared due mostly to distressed sales. The flood of distressed sales 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.

I expect this gap to close over the next few years once the number of distressed sales starts to decline.

Note: 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. Also the National Association of Realtors (NAR) is working on a benchmark revision for existing home sales numbers and I expect significant downward revisions to sales estimates for the last few years - perhaps as much as 10% to 15% for 2009 and 2010. Even with these revisions, most of the "distressing gap" will remain.

URL to original article: http://www.builderonline.com/builder-pulse/distressed-sales-keep-up-a-wide-gap-between-resales-and-new-orders.aspx?cid=NWBD110727002

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