Post by unlawflcombatnt on Jan 14, 2007 22:47:08 GMT -6
It appears that the so-called rebound in the Housing market is largely the result of a statistical anomaly where home cancellations are not subtracted from total home sales, and not added back in to the total inventory. The end result is that home sales are much lower than has been publicly reported, and inventories are much higher than reported. Below is a partial copy of a January 7th New York Times article by Daniel Gross titled "A Phantom Rebound in the Housing Market".
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"January 7, 2007
A Phantom Rebound in the Housing Market
By DANIEL GROSS
....those who think that the worst may be over for the housing market should take another look at the data, economists say. For the figures on new-home sales have a strange wrinkle that, in the current environment, may lead the government to overstate sales (and to understate inventory) by up to 20 percent. “The market is weaker than the data say,” said Mark Zandi, chief economist at Moody’s/Economy.com.
New-home sales are tallied by the Census Bureau, based on a sampling of contracts signed by home buyers. Running at a pace of more than one million a year for the last four years, new-home sales have been a significant contributor to the housing boom — and to the economy. (Existing-home sales, reported monthly by the National Association of Realtors, count actual closings.)
But here’s the rub: If a contract to buy a home, signed in November, is canceled in December, the Census Bureau does not subtract the failed transaction from the number of sales, or add the house back to its inventory total. In the last year, as the housing market has cooled, the volume of cancellations has risen to epidemic proportions.
Speculators who signed contracts to buy homes in new communities in hot markets like Florida simply walked away from their deposits when they realized they couldn’t flip the houses for a quick profit. And as prices and interest rates rose, noted Joseph Carson, chief economist at AllianceBernstein, “people who committed to making new home purchases found they were having difficulty selling their own houses.”
And so, in the quarter ended on Oct. 31, Toll Brothers, the high-end home builder, noted that cancellations totaled 37 percent of contracts signed in the quarter, up from 18 percent in the same quarter the previous year. Pulte Homes, the builder based in Bloomfield Hills, Mich., reported a 36 percent cancellation rate in its third quarter, up from 17 percent in the 2005 third quarter.
“Cancellations have really affected big, publicly held builders the most, because they are relatively heavily concentrated in what had been the hottest markets,” said Dave Seiders, chief economist at the National Association of Home Builders. Basing his findings on a survey of 30 large builders, Mr. Seiders concluded that in November 2006, cancellations constituted 38 percent of gross sales, compared with 26 percent in November 2005 and about 18 percent in the first half of 2005.
Of course, the large publicly held builders comprise a minority of the home-building industry. Lawrence Yun, senior economist at the National Association of Realtors, noted that “smaller home builders aren’t affected as much by cancellations because they generally try to sign up clients before they start construction.”
On its Web site, the Census Bureau acknowledges: “As a result of our methodology, if conditions are worsening in the marketplace and cancellations are high, sales would be temporarily overestimated.” By how much? Mr. Carson of AllianceBernstein estimates that the government is overestimating the pace of annual sales by 100,000 to 150,000. Mr. Zandi of Economy.com estimates that the differential is even greater. “Given the rise in cancellation rates, it suggests that between 150,000 and 200,000 home sales are being counted that actually did not occur.”
Just as the rising tide of cancellations leads the Census Bureau to overreport sales in the short term, it leads the government to underreport inventories. New homes on which contracts are not consummated are not added back into the inventory figure. The most recent report found that the seasonally adjusted estimate of new houses for sale at the end of November was 545,000, or 6.3 months of supply. Given the high rate of cancellations, it’s likely that inventory is substantially higher.
This much is clear: Given the failure of the reports to account for cancellations, demand isn’t as strong as it appears, and supply is greater than it seems....
Copyright 2007 The New York Times Company"
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"January 7, 2007
A Phantom Rebound in the Housing Market
By DANIEL GROSS
....those who think that the worst may be over for the housing market should take another look at the data, economists say. For the figures on new-home sales have a strange wrinkle that, in the current environment, may lead the government to overstate sales (and to understate inventory) by up to 20 percent. “The market is weaker than the data say,” said Mark Zandi, chief economist at Moody’s/Economy.com.
New-home sales are tallied by the Census Bureau, based on a sampling of contracts signed by home buyers. Running at a pace of more than one million a year for the last four years, new-home sales have been a significant contributor to the housing boom — and to the economy. (Existing-home sales, reported monthly by the National Association of Realtors, count actual closings.)
But here’s the rub: If a contract to buy a home, signed in November, is canceled in December, the Census Bureau does not subtract the failed transaction from the number of sales, or add the house back to its inventory total. In the last year, as the housing market has cooled, the volume of cancellations has risen to epidemic proportions.
Speculators who signed contracts to buy homes in new communities in hot markets like Florida simply walked away from their deposits when they realized they couldn’t flip the houses for a quick profit. And as prices and interest rates rose, noted Joseph Carson, chief economist at AllianceBernstein, “people who committed to making new home purchases found they were having difficulty selling their own houses.”
And so, in the quarter ended on Oct. 31, Toll Brothers, the high-end home builder, noted that cancellations totaled 37 percent of contracts signed in the quarter, up from 18 percent in the same quarter the previous year. Pulte Homes, the builder based in Bloomfield Hills, Mich., reported a 36 percent cancellation rate in its third quarter, up from 17 percent in the 2005 third quarter.
“Cancellations have really affected big, publicly held builders the most, because they are relatively heavily concentrated in what had been the hottest markets,” said Dave Seiders, chief economist at the National Association of Home Builders. Basing his findings on a survey of 30 large builders, Mr. Seiders concluded that in November 2006, cancellations constituted 38 percent of gross sales, compared with 26 percent in November 2005 and about 18 percent in the first half of 2005.
Of course, the large publicly held builders comprise a minority of the home-building industry. Lawrence Yun, senior economist at the National Association of Realtors, noted that “smaller home builders aren’t affected as much by cancellations because they generally try to sign up clients before they start construction.”
On its Web site, the Census Bureau acknowledges: “As a result of our methodology, if conditions are worsening in the marketplace and cancellations are high, sales would be temporarily overestimated.” By how much? Mr. Carson of AllianceBernstein estimates that the government is overestimating the pace of annual sales by 100,000 to 150,000. Mr. Zandi of Economy.com estimates that the differential is even greater. “Given the rise in cancellation rates, it suggests that between 150,000 and 200,000 home sales are being counted that actually did not occur.”
Just as the rising tide of cancellations leads the Census Bureau to overreport sales in the short term, it leads the government to underreport inventories. New homes on which contracts are not consummated are not added back into the inventory figure. The most recent report found that the seasonally adjusted estimate of new houses for sale at the end of November was 545,000, or 6.3 months of supply. Given the high rate of cancellations, it’s likely that inventory is substantially higher.
This much is clear: Given the failure of the reports to account for cancellations, demand isn’t as strong as it appears, and supply is greater than it seems....
Copyright 2007 The New York Times Company"