COMPARING NEW HOMES SALES AND EXISTING HOME SALES

Note: The following explanation is provided by the U.S. Census Bureau. For more information on housing information released by the U.S. Census Bureau visit http://www.census.gov/const/www/index.html. To view quarterly data on existing home sales in New Jersey visit the New Jersey Association of Realtors website at http://www.njar.com/research_statistics/index.php.

New home sales and existing home sales are released each month at about the same time. Many comparisons are made between the two series, but before doing any comparisons, one must be aware of some definitions that affect the timing of the statistics.

The Census Bureau collects new home sales based on the following definition: “A sale of a new house occurs with the signing of a sales contract or the acceptance of a deposit.”  The house can be in any stage of construction: not yet started, under construction, or already completed. Typically about 25 percent of the houses are sold at the time of completion. The remaining 75 percent are evenly split between those not yet started and those under construction.

Existing home sales data are provided by the National Association of Realtors. According to NAR, the majority of transactions are reported when the sales contract is closed. Most transactions usually involve a mortgage, which takes 30-60 days to close. Therefore an existing home sale (closing) most likely involves a sales contract that was signed a month or two prior.

Given the difference in definition, new home sales usually lead existing home sales regarding changes in the residential sales market by a month or two. For example, an existing home sale in January was probably signed 30-45 days earlier, which would have been in November or December. This is based on the usual time it takes to obtain and close a mortgage.

Since January of 2005, the NAR has been publishing Pending Home Sales data, a monthly data release on sales that are under contract but not yet closed. The data, which overcome the lagging effect of the existing home sales definition, makes it roughly equivalent to the new home sales definition.

In New Jersey new home sales account for about 17 percent of all home sales.