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New-Home Cancellations Distort Housing Market
This just out from Mark Zandi of Moody’s Economy.com. I said the same thing in my post of November 30th October New Home Sales. Inventory levels are distorted by the HUD and the Census Bureau’s methodology, overstating the decline in housing inventory. The real estate hangover ain’t over yet folks
New-Home Cancellations Distort Housing Market Cancellations of new home sales are distorting the housing market, making it appear that things are better than they are, says Mark Zandi, chief economist at Moody’s Economy.com. If a contract to buy a home is signed in November, then cancelled in December, the Census Bureau does not subtract the failed transaction from the number of sales. In the last year, as the housing market has cooled, the volume of cancellations has risen to epidemic proportions. New homes on which contracts are cancelled 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, Economy.com says it’s likely that inventory is substantially higher. Source: The New York Times, Daniel Gross (01/07/2007)
The large public builders, who have been killing the market with overproduction, are reaching their fiscal year-ends now and can slow things down if they choose. Unfortunately, each thinks themselves smarter than their competitors. That hubris leads them to continue the overproduction in the false hope of gaining market share. To paraphrase the old adage (probably inaccurately) “you can’t lose a little money on each unit and make it up on volume.”