On Tuesday, we noted that New Home Sales fell 42%. There was one small piece of the data I failed to mention earlier in the week, which is worth discussing — the March revisions:
1) Revisions: April’s (unrevised) data for new homes was 526k annualized units (+3.3). That is the identical to the number released in March — 526k units. March sales were revised to -11%
from -8.5%. So but for the revisions, March to April headline number was flat.
How did we show a 3.3% monthly gain? Tuesday’s report saw March revised DOWNWARDS from 526k units to 509k units. In other words, April did not so much showed a positive move upwards (statistical error notwithstanding) as much as the prior month comparison was revised downwards.
2) Apples to Oranges: Why do we compare Revised versus Unrevised data? The overall trend for the past year has been mostly downward revisions. An apples-to-apples comparison would be an original release to original release (that showed flat data, not an increase in new homes sales).
Comparing the original (but soon to be revised) April data to the revised March data presents a misleading picture.
3) Cancellations: Of course, none of the new home sales data includes cancellations, which were running north of 30% — and with the recently tightened credit, it may be even worse.
UPDATE May 30, 2008 12:55pm
Over at Calculated Risk, Tanta disagrees with my assessment:
"Cancellations are not getting worse. In fact they are getting better.
For most builders, cancellation rates peaked in Q3 2007 (with the
credit crunch) and have improved significantly since then. And it’s the
change in cancellation rates that matter when analyzing the New Home
This is a key point: right now the Census Bureau is probably underestimating sales!
I do not know if cancellations are getting worse (I wrote "may be even worse"). However, we do know several things:
1. Census Department does not factor in cancellations at all. Let’s say for arguments sake that cancellations are improving — from 30+% to 15+% or better —
that only means the overstatement of sales is less, but still
2. Cancellations represent potential understated sales in some indeterminate
future. Past cancellations might be getting sold today — or they might not. We don’t really know. One would think if they were, however, we should see some evidence somewhere in some data — sales, homebuilder inventory, etc.
I have yet to see that anywhere (doesn’t mean it doesn’t exist, i just haven’t seen it).
3. Right now, all of the YoY, inventory, and price data suggests that prices & sales are still falling. If and when New Home sales actually see real month over month, YoY improvements,
then CENSUS will be understating it New Sales. But thats somewhere off in the
(possibly distant) future.
If someone can show me a definitive basis for thinking New Home Sales are better than reported, I mention it on Kudlow & Co. But until then, do not count your chickens before they are hatched!
No, New Homes Sales DID NOT Rise . . . (October 2007)
New Residential Sales
The Census Bureau MAY 27, 2008
Cockeyed Optimists See Housing Recovery
RANDALL W. FORSYTH
Barron’s May 28, 2008