WASHINGTON – Oct. 24, 2014 – A drop in single-family home sales – both new homes and existing homes – over the past few years equates to a real estate market that is at least 700,000 shy in annual home sales, according to estimates by David Crowe, the chief economist for the National Association of Home Builders.
He arrived at that estimate by taking into account historical market averages in the late 1990s and early 2000s, which showed home sales at about 5.6 million per year – made up of 900,000 new-home sales and 4.7 million in existing-home sales.
But the latest loss in sales can largely be attributed to a drop in new-home sales, Crowe notes. Single-family new-home sales peaked in 2005 at 1.3 million, but plunged by 77 percent to 300,000 in 2011. It's slowly been regaining. Meanwhile, existing-home sales – heavily lifted by distressed sales to investors in recent years – dropped 40 percent from peak to trough, Crowe notes.
"As demand for more homes dried up, households lost their owned homes through foreclosure, and the number of newly formed households shrank, the existing supply of homes was more than sufficient to satisfy demand," Crowe says. "Adding more inventory to a saturated market made little sense" at the time.
First-time buyers will be key to making up for the loss in sales, Crowe says. Sales of existing-homes to first-time buyers are more likely to result in the seller buying a new home, he notes.
"First-time buyers expand the need for more homes even if they aren't the primary purchasers of those new homes," Crowe notes. "First-time buying was 40 percent of the existing market and 30 percent of the new-home market in in more stable periods. Those shares, of a smaller market, have dropped to 27 percent and 16 percent, respectively. …
"First-time home buyers continue to struggle with their own financial limitations but as the economy expands and jobs become more available and better paying, the core 25- to 34-year-old first-time buyers will come back."