A home is a home is a home; so let's buy the cheaper one

This is probably one result of the foreclosure crisis in sub-prime mortgages, and it sure is interesting: Sales of newly built homes fell by the same exact percentage (3.9%) as sales of existing homes rose, according to Forbes Magazine.

The explanation (a.k.a. "let's take a stab at it"):

David Lereah, the head economist for the National Association of Realtors, said the landscape for the resale market is very different from new-home sales. “There is a recovery in existing home sales, but for new home builders, the market will be very bumpy going forward,” he said. “New-home sales are still in recession, and increased foreclosures and subprime problems will make the next two years difficult.”

New foreclosures and tightening credit standards will lead to a glut in housing and limit potential buyers. According to the report, the number of unsold homes rose to its highest level in 16 years, indicating that prices for new homes will continue to fall as competition tightens.

At the end of February, there were 546,000 houses on the market, translating to an 8.1 months supply— the highest backlog since January 1991.

Calling the subprime crunch “a real negative,” Lereah said from 10% to 25% of subprime borrowers, about 100,000 to 250,000 potential home buyers, will no longer be able to qualify for loans. This is bound to affect prime borrowers, who may postpone purchases because of tighter lending practices, he said. However, the ongoing price correction and low mortgage rates should continue to lure new home buyers and the long-term fundamentals remain solid, Lereah said.

In short, sales of existing homes don't help the construction industry, but sales of new homes do.