Sunday, January 07, 2007

Phantom housing rebound?

Interesting article in today's NY Times. Essentially, housing sales data reported by the Census Bureau may actually be overstated by 150,000 to 200,000 homes. Worse, homes which have had their sales contracts cancelled are not added to the inventory, resulting in underreporting of housing inventories. The market is in worse condition than the reported data indicates.

For the figures on new-home sales have a strange wrinkle that, in the current environment, may lead the government to overstate sales (and to understate inventory) by up to 20 percent. “The market is weaker than the data say,” said Mark Zandi, chief economist at Moody’s/Economy.com.

New-home sales are tallied by the Census Bureau, based on a sampling of contracts signed by home buyers. Running at a pace of more than one million a year for the last four years, new-home sales have been a significant contributor to the housing boom — and to the economy. (Existing-home sales, reported monthly by the National Association of Realtors, count actual closings.)

But here’s the rub: If a contract to buy a home, signed in November, is canceled in December, the Census Bureau does not subtract the failed transaction from the number of sales, or add the house back to its inventory total. 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 not consummated 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, it’s likely that inventory is substantially higher."

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