Saturday, November 29, 2008

Subtraction By No Addition, Housing Numbers?

Floyd Norris brought out his magnifying glass to look at the recent housing data release from the Census Bureau. He found the inventory of new homes reported as lower by 18,000 when only 15,000 were sold. Where did the other 3,000 reduction in houses come from, if they weren't sold?

Further, what about new houses completed, why weren't any new houses added to the inventory? Inquiring minds want to know.

Norris called the Census Bureau on Friday and received a tape recording.

Norris comes up with one theory:

A colleague suggests to me that it could indicate that homes came off the market even though they were not sold. Perhaps builders decided to seek renters rather than wait for buyers that never arrived.

If that is true, then the inventory figures may be deceptively low, assuming that the builders would still love to sell the houses they are now trying to rent. That is not reassuring.
This might account for part of the difference, but I doubt it is all of it. Let's see how the Census Bureau explains this on Monday. But, my bet is that it has something to do with seasonal adjustment factors. Norris is using non-seasonal for his sales deductions, but, perhaps, he is using seasonally adjusted inventory numbers.

1 comment:

  1. Another thing about New Home Sales is that the numbers are based on contracts signed, not closing of sales. So especially in these times when people are not getting loans or simply dropping contracts due to the economy then these New Home Sales figurers need to be taken with a huge grain of salt. A lot of new home builders are reporting high percentages of contracts cancelled, especially in the more bubbly areas where flippers and speculators have no interest in buying RE that is dropping in value.

    Also they don’t count cancelled contracts

    From the Census Bureau website
    “The Census Bureau collects new home sales based upon the following definition: "A sale of the new house occurs with the signing of a sales contract or the acceptance of a deposit." The house can be in any stage of construction: not yet started, under construction, or already completed. Typically about 25% of the houses are sold at the time of completion. The remaining 75% are evenly split between those not yet started and those under construction. “

    “The Census Bureau does not make adjustments to the new home sales figures to account for cancellations of sales contracts. The Survey of Construction (SOC) is the instrument used to collect all data on housing starts, completions, and sales. This survey usually begins by sampling a building permit authorization, which is then tracked to find out when the housing unit starts, completes, and sells. When the owner or builder of a housing unit authorized by a permit is interviewed, one of the questions asked is whether the house is being built for sale. If it is, we then ask if the house has been sold (contract signed or earnest money exchanged). If the respondent reports that the unit has been sold, the survey does not follow up in subsequent months to find out if it is still sold or if the sale was cancelled. The house is removed from the "for sale" inventory and counted as sold for that month. If the house it is not yet started or under construction, it will be followed up until completion and then it will be dropped from the survey. Since we discontinue asking about the sale of the house after we collect a sale date, we never know if the sales contract is cancelled or if the house is ever resold. Therefore, the eventual purchase by a subsequent buyer is not counted in the survey; the same housing unit cannot be sold twice. As a result of our methodology, if conditions are worsening in the marketplace and cancellations are high, sales would be temporarily overestimated. When conditions improve and these cancelled sales materialize as actual sales, our sales would then be underestimated since we did not allow the cases with cancelled sales to re-enter the survey. In the long run, cancellations do not cause the survey to overestimate or underestimate sales. “