Existing vs. New Home Sales Indicators
Two Measures of Housing Demand
Home sales data comes from two separate sources measuring different market segments:
Existing home sales: Published by the National Association of Realtors (NAR), measures sales of previously owned homes—approximately 85-90% of total home sales.
New home sales: Published by the Census Bureau, measures sales of newly constructed homes—approximately 10-15% of total sales.
The point is: Existing home sales capture the bulk of market activity, but new home sales provide forward-looking signals about builder confidence and residential investment.
Existing Home Sales: The Volume Indicator
The NAR surveys Multiple Listing Services (MLS) and local boards to estimate completed transactions.
Key metrics reported:
- Total sales (annualized rate)
- Median and average prices
- Inventory levels (months of supply)
- Days on market
Typical levels:
- Pre-2008 peak: 7.1 million annualized
- 2010 trough: 3.6 million annualized
- 2021 pandemic peak: 6.1 million annualized
- 2024 levels: approximately 3.8-4.0 million annualized
Worked example (October 2024):
- Existing home sales: 3.96 million annualized
- Median price: \07,200
- Inventory: 4.2 months of supply
The historically low inventory (below 6 months) explains why prices remained elevated despite weak sales volume.
New Home Sales: The Forward-Looking Indicator
New home sales measure contracts signed for new construction—not completions. This makes them more forward-looking.
Typical levels:
- Pre-2008 peak: 1.4 million annualized
- 2011 trough: 306,000 annualized
- 2024 levels: approximately 650,000-700,000 annualized
Why new home sales lead:
- Contracts signed before construction complete
- Builder incentives visible in data
- Less constrained by lock-in effect
The Lock-In Effect
Existing home sales in 2022-2024 were suppressed by the "lock-in effect":
The mechanism:
- Homeowners with 3% mortgages hesitate to sell
- Selling means giving up low rate
- Buying requires new mortgage at 7%+
- Result: Owners stay put, inventory constrained
Quantified impact: An estimated 60% of mortgages were locked in below 4% as of 2024, creating significant friction in the existing home market.
The point is: New home sales gained market share because they were not affected by lock-in. Builders could offer incentives (rate buydowns) that existing home sellers could not match.
Inventory Metrics
| Measure | Healthy Range | Current Implications |
|---|---|---|
| Months of supply (existing) | 4-6 months | Below 4: Seller's market |
| Months of supply (new) | 5-7 months | Above 7: Builder stress |
| Total inventory | 2+ million units | Below 1.5M: Shortage |
The calculation: Months of Supply = Active Listings / Monthly Sales Rate
Worked example:
- Active listings: 1.37 million
- Monthly sales: 330,000
- Months of supply: 4.2 months (still tight)
Pending Home Sales: The Leading Indicator
The NAR also publishes pending home sales—contracts signed but not yet closed. Because closings take 30-60 days, pending sales lead existing sales.
How to use it:
- Rising pending sales → Existing sales will rise 1-2 months later
- Falling pending sales → Existing sales will decline 1-2 months later
Contract fallout rate: Approximately 15-20% of contracts fail to close (financing issues, inspection problems, buyer remorse). This gap matters when interpreting pending vs. closed sales.
Price Data Differences
| Source | Methodology | Limitation |
|---|---|---|
| NAR median price | Simple median of sales | Mix shift distorts trends |
| Case-Shiller | Repeat sales methodology | 2-month lag, 20-city focus |
| FHFA HPI | Repeat sales, conforming loans | Misses jumbo, cash sales |
The practical insight: NAR median prices can rise even if individual home values are flat—if the mix shifts toward expensive homes. For true price trends, use Case-Shiller or FHFA.
Common Pitfalls
- Comparing existing and new home sales directly: Different data collection, different reporting lags
- Using median price as a value indicator: Mix effects dominate month-to-month
- Ignoring regional variation: Florida and Texas behave differently than California and New York
- Missing seasonal patterns: Spring selling season consistently stronger
New Home Sales Revisions
New home sales data is notoriously volatile and heavily revised:
| Revision History | Typical Range |
|---|---|
| First estimate | +/- 10% is common |
| Final revision | Can exceed +/- 15% from initial |
The practical point: Do not overreact to any single month's new home sales figure. Wait for revisions and focus on three-month moving averages.
Housing and Consumer Spending
Strong housing markets support consumer spending through:
- Wealth effect: Rising home values boost spending confidence
- Home equity extraction: HELOCs fund consumption
- Moving-related spending: Furniture, appliances, renovations
The flip side: When housing weakens, these channels reverse, creating drag on the broader economy.
Checklist for Housing Sales Data
Existing home sales (monthly, NAR):
- Check sales volume vs. prior year
- Note inventory levels and months of supply
- Track median price with awareness of mix effects
- Check pending home sales for forward signal
New home sales (monthly, Census):
- Compare to prior month with revision awareness
- Check median price for builder incentive signals
- Note months of supply for builder confidence read
- Use three-month average for trend
Next Step
Track the ratio of new home sales to existing home sales over the next six months. This ratio typically rises when existing inventory is constrained (lock-in effect) and falls when existing inventory normalizes. The ratio provides insight into competitive dynamics between builders and existing homeowners.