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December Existing Home Sales: Real Progress

Existing home sales: a pleasant surprise, but little help to builders...

December existing home sales were a pleasant surprise at 5.28 million annualized, better than expected, up 12 percent from the November number, and 19 percent from October.

This is real progress. And for the cynics who say existing home sales only measures closings and is not a good forward indicator, can I point out that pending home sales (which measures contracts signed) are also up 14 percent in the last two months. Dan Oppenheim at Credit Suisse notes this is the highest level since the tax credit ended in June.

Contrast this to new home sales, where we are seeing virtually no bounce. We'll get the December numbers next week, but we will likely continue to bounce along the bottom, with 275-300,000 annualized sales (at the top in 2005, sales were almost 1.4 million annualized).

The result: homebuilders are continuing to lose market share. Oppenheim notes that new home sales are now just 7% of total single-family home sales in 2010, a new low, compared with 17% historically.

Why is this happening? Because buyers perceive more value in buying existing homes. Many observors think builders will be forced to cut prices even more.

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