The new-home sales market is greatly dependent on the existing-home sales market. Currently, at least 80% of new homes are purchased by buyers who sold an existing home. In better times, when the first-time buyer is more active, repeat buyers' share could sink to 65% to 70%—still a substantial portion of sales.

The modest housing recovery has slowed existing homeowners' normal turnover; or existing homeowners' reluctance has slowed the housing recovery. The cause and effect are difficult to separate although several contributing factors are identifiable.

New-home sales totaled 439,250 last year, up 43% from the low in 2011 but still well below the annual average from 1990 to 2002 of 751,000. Sales are recorded in official Census data only for those homes built for sale or broadly referred to as speculative built. The sales totals do not include homes not "sold" but built directly under the order of the purchaser or on the purchaser's land, broadly referred to as custom built.

In 2014, one-quarter of single-family housing starts were built as a custom home and were not included in the for-sale category. That share is down from the 1990 to 2002 average of 31%. In terms of absolute values, 162,000 single-family homes were started as custom homes in 2014, up from the trough of 123,000 in 2011, but still well below the earlier average of 349,000.

The future is looking brighter. existing home values are increasing, raising owners' equity along with them.

Purchases of a new home by existing-home sellers are split with about two-thirds buying for-sale or speculative built homes and one-third buying custom built. The falloff in the first-time home buyer has affected the for-sale or speculative built market to a greater extent because 88% of the first timers who did buy a new home bought a speculatively built home. The slow recovery in the new-home sales data is partially due to the greater impact on the speculative built homes from first-time home buyers' withdrawal.

Homeowner equity matters a lot. According to CoreLogic, about 5 million home owners remain underwater, meaning their outstanding mortgage balance exceeds the value of their home. Another 1.3 million home owners have 5% or less equity, making it difficult to cover selling costs. If the equity needed to induce selling and provide a down payment is expanding to 20%, then the number of homeowners with a mortgage who are unable or unlikely to sell expands to nearly 15 million.

Homes with low or no equity remain concentrated: about one-third are in 10 states. The balance of 35 million homeowners with a mortgage have sufficient equity to use for a down payment on a new home, as well as the 24 million that have no mortgage.

Nearly one-third of owner-occupied homes have no mortgage but more than half of those households are 65 or older, and only 2% of that age group typically buy a home in a year. Further, equity for those with a mortgage rises with value so the most likely mortgaged home with sufficient equity is a higher valued home.

This is a driving reason behind the shift in the median sales price of new homes. Sales are shifting to those with sufficient equity and current income to qualify for a mortgage. Sales of new homes below $200,000 fell from over half of all sales in 2002 to one-quarter in 2014, and sales of homes priced at $400,000 or more increased from 9% to one-quarter over the same period.

The future is looking brighter. Existing home values are increasing, raising equity along with them. Home price indexes that avoid measuring price changes because of the type of home sold is different (called same-sales price indexes such as those published by the S&P/ Case-Shiller or the Federal Housing Finance Agency) have increased at about 5.5% in the past three years versus 4.5% in the 1990 to 2002 period. At the same time, affordability remains good in most markets.

Out of the 226 metropolitan markets measured in the NAHB/Wells Fargo Housing Opportunity Index, 92% have an index above 50, meaning the typical household (earning median income) can afford at least half of the homes recently sold. As current owner equity increases, more existing home sales will produce new-home purchasers.