Are Existing Homes and New Homes Following Different Paths?

My latest housing market analysis is now up on TheStreet.com. It appears that, while current data indicates that the existing home market may or may not be heading into a broad bottom, the new home market is probably many months away from a bottom. Tomorrow the December new homes report from the U.S. Census Bureau will go a long way toward determining if the previous low sales of this cycle for new homes, set in early 2009, will be broken to the downside.

While the 2009 tax credit for first time home buyers seemed to have boosted the sales volumes for existing homes, the number of sales of new homes fell throughout the last seven months of the year, much of the time when the tax credit was applied. With a new tax credit program underway until April, will the business again go primarily to the existing home market?

The new home market is more severely impacted by the flood of foreclosures than the existing home market because the price point per square foot for new homes is far above most foreclosures. Only existing homes can compete, and it remains to be seen just how well they can do that in 2010.

Just how big the over supply of available homes will be in 2010 was estimated yesterday. It appears to be larger than the total sales volume for 2009. It could be that the two markets, existing homes and new homes, will continue on different paths in 2010. Builders can not afford to build new homes when existing homes are selling much below construction costs.

Disclosure: No positions.