By David Lykken
Special to MPA
As mortgage professional
s, we're always looking for key metrics that give us insight into the state of the economy and the trajectory of the market. One such metric in which we are intuitively interested is the total home sales. But, of all home sales, which is a greater indicator of the state of the economy--new home sales or existing home sales?
Sales of existing homes account for roughly 90% of total home sales, while sales newly constructed homes account for only the remaining 10%. So, when the volume of new homes decreases, we seemingly have little to worry about. Just because new homes aren't being built, that doesn't mean that people aren't buying homes at all.
The surprising thing, however, is that new home sales contribute more to GDP than existing home sales. And GDP, not just for the mortgage industry but also for all industries, is the probably the most robust and reliable indicator of what the economy is doing.
It makes sense, if you think about it. Consider all the industries affected by new home construction, and compare that to the small number of industries affected by existing home sales. New homes get everybody moving.
That being said, a sale is a sale. It can be useful to look at and set targets against both metrics for new home sales and existing home sales. In the end, it's all about bringing both numbers up. We've got to keep an eye on where we are; then, we can know how far we need to go.
David Lykken is 40-year industry veteran who has been an owner operator of three mortgage banking companies and a software company. As co-founder and Managing Partner of Mortgage Banking Solutions, David consults on virtually all aspects of mortgage banking with special emphasis executive leadership development, corporate strategic direction and implementation as well as mergers & acquisitions. A regular contributor on CNBC and Fox Business News, David also hosts a successful weekly radio program called “Lykken On Lending” (www.LykkenOnLending.com) that is heard each Monday at noon (Central Standard Time) by thousands of mortgage professionals. Recently he started producing a 1-minute video called “Today’s Mortgage Minute” that appears on hundreds of television, radio and newspaper websites daily across America.