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« China Economy and Inflation: Strong and Weird | Main | Housing Vacancy Still Waaaaaay Too High »

January 28, 2008


Rational expectations

This has to be the _stupidest_ commentary I have read this year (OK, the year is young, there may be worse coming). Just numbingly vapid:

1.) Title: "New Home Sales May Be Better Than They Look" I quote: "Are new home sales higher than official statistics? I don't know." So, in other words, the correct title should be something like: "New Home Sales May Be Better, or Worse, Than They Look... Search Me!!!" Since you don't know, why favor one or the other conclusion in the title?

2.) Actually, you do know, or are pretty sure. Over-reporting of sales is a function of cancellations, as the article makes clear. Have cancellations stopped? Are homebuilders now completing most of their sales? A reporter in this situation might be prompted to pick up the telephone... I will just save you the hassle. The answer is "no," cancellations are still a huge problem for builders. The Census is still over-counting.

3.) And by the way, the logic is just wrong. The Census statistics can only over-count, not undercount. They count a "sale" when a new home comes under contract. If that house sells, this is really a sale. If the buyer backs out, then this sale is already counted and will not be recounted if the home re-sells. There is no provision for moving the counted sale to a later date. Thus, by "under-counting" sales, the author is simply forgetting that the sale has already been counted.

The effect is to make current statistics look rosier than they actually are. Yes, at some point these houses will clear and the timing of their clearing will be missed. This does NOT mean that the statistics are EVER going to under-count. The MOST houses that sold this month are what the Census tells us, and most likely this significantly overstates sales, as we have seen for the past year. All this error will do is to make the decline appear shallower than it really is. The bottom will still be the bottom (when we get there).

4. Oh, and by the way, this still assumes that all homes are sold. The inventories of homes in places like Northern California, Nevada, and Florida that may NEVER get sold are going to ensure that the bottom in the Census data is permanently optimistic. Get off the hemp, sir!

The Daniels Team

New homes sales in the Colorado Springs market have been hit and some builders are closing up shop or moving out of town, and the good builders are taking advantage of it. They will just have to wait it out. People will always need homes.

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