Required reading about this from Bill McBride, one of the leading housing analysts in the country: https://calculatedrisk.substack.com/p/new-home-sales-and-cancellations-80e

“Other builders are seeing sharp increases too. When looking at new home sales, we are interested in net sales for each month, however the Census Bureau reports gross new sales. A simple equation would be:

Sales (net) = Sales (gross) – Cancellations + Sales of earlier cancellations.

In the long run, the cancellation terms balance out, and the Census Bureau numbers are what we want. In other words, Sales(net) = sales(gross). But in the short run, when cancellations increase, the Census Bureau overestimates sales; and when cancellations decrease, the Census Bureau underestimates sales.”

and here: https://calculatedrisk.substack.com/p/new-home-sales-increased-in-october

Conclusion

First, as I discussed two months ago, the Census Bureau overestimates sales, and underestimates inventory when cancellation rates are rising, see: New Home Sales and Cancellations: Net vs Gross Sales. So, take the headline sales number with a large grain of salt – the actual negative impact on the homebuilders is far greater than the headline number suggests!

For example, on increasing cancellation rates, Rick Palacios Jr, Director of Research at John Burns Real Estate Consulting, tweeted yesterday:

https://twitter.com/RickPalaciosJr/status/1595106749421260802?s=20&t=Lx3Ngo3akDXcJwcfvE_08A

“26% cancellation rate for home builders in October. Tomorrow’s new home sales release won’t reflect what’s really happening with dropped contracts.”

The point is, not all is what it seems here.

And people, do yourselves a favor if you really want to understand Residential RE, and follow Bill and Rick (and a few others) and get off this sub. I rarely if ever post here but the quality of the sub’s information, I hate to say it, is mostly way off base and full of logical errors.



Source link