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  • New Home Sales Could Be Better Than They Look

Economy

28 Jan 2008

New Home Sales Could Be Better Than They Look

  • By Bill Conerly
  • In Economy
  • 2 comments

New home sales plunged again, according to Census Bureau statistics:
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However, at some point sales will be better than the official statistics, and that point might well be now.

The Census Bureau data misses canceled sales, which ran around 40 percent of total sales for some major homebuilders last year.  The bureau looks at particular houses; when one is reported sold, that house is removed from the statistical database.  If the sale falls through–like, if the buyer gets cold feet or does not qualify for a mortgage–Census never goes back to adjust the data.  So when cancellations are on the rise, sales are lower than official statistics.  What happens to those houses whose first sale was canceled?  When they get sold a second time (or a third), in a sale that finally closes, they are not counted as new home sales.  They are not counted because those houses were outside the Census Bureau database.

Are new home sales higher than official statistics?  I don’t know.  At some time, though, true sales have to be higher than official data.  If it’s not happening now, it will certainly be the case by later this year.

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Bill Conerly

    Comments

  1. Rational expectations
    January 29, 2008

    This has to be the _stupidest_ commentary I have read this year (OK, the year is young, there may be worse coming). Just numbingly vapid:
    1.) Title: “New Home Sales May Be Better Than They Look” I quote: “Are new home sales higher than official statistics? I don’t know.” So, in other words, the correct title should be something like: “New Home Sales May Be Better, or Worse, Than They Look… Search Me!!!” Since you don’t know, why favor one or the other conclusion in the title?
    2.) Actually, you do know, or are pretty sure. Over-reporting of sales is a function of cancellations, as the article makes clear. Have cancellations stopped? Are homebuilders now completing most of their sales? A reporter in this situation might be prompted to pick up the telephone… I will just save you the hassle. The answer is “no,” cancellations are still a huge problem for builders. The Census is still over-counting.
    3.) And by the way, the logic is just wrong. The Census statistics can only over-count, not undercount. They count a “sale” when a new home comes under contract. If that house sells, this is really a sale. If the buyer backs out, then this sale is already counted and will not be recounted if the home re-sells. There is no provision for moving the counted sale to a later date. Thus, by “under-counting” sales, the author is simply forgetting that the sale has already been counted.
    The effect is to make current statistics look rosier than they actually are. Yes, at some point these houses will clear and the timing of their clearing will be missed. This does NOT mean that the statistics are EVER going to under-count. The MOST houses that sold this month are what the Census tells us, and most likely this significantly overstates sales, as we have seen for the past year. All this error will do is to make the decline appear shallower than it really is. The bottom will still be the bottom (when we get there).
    4. Oh, and by the way, this still assumes that all homes are sold. The inventories of homes in places like Northern California, Nevada, and Florida that may NEVER get sold are going to ensure that the bottom in the Census data is permanently optimistic. Get off the hemp, sir!

  2. The Daniels Team
    July 2, 2008

    New homes sales in the Colorado Springs market have been hit and some builders are closing up shop or moving out of town, and the good builders are taking advantage of it. They will just have to wait it out. People will always need homes.

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