Housing
December 12th, 2006 by
Senior Editor: Jeff
From John Mauldin's most recent analysis:
Lennar, the #3 homebuilding firm, said the cancellation rates for home sales were running about 30% last quarter. KB Homes said the number was 43%. A lot of anecdotal stories suggest the numbers could get worse. So that would add homes back into the Homes for Sale statistics that the Commerce Department (Census Bureau) tracks, wouldn't it?
The simple answer is no. The Census Bureau surveys home builders and specific housing starts. If a home is built and at some point put under contract for sale, it is then considered sold. The Census Bureau does not go back a few months later and ask, "Did you really sell that house?"
Because of the way they do the survey, they do not double count if the home sells at some later point to another person. One house, one vote. In the long run, cancellations do not cause the system to either overestimate or underestimate the number of houses sold.
But in the short run? As their web site explains: "As a result of our methodology, if conditions are worsening in the marketplace and cancellations are high, sales would be temporarily overestimated."
So the recent data that shows new home sales as possibly, maybe, getting to a bottom of the cycle? With north of 30% cancellations, the number of actual sales is certainly less than the data is showing.
