Monday, April 25, 2011

Timing: New Home Sales and Home Builder Reports

by Bill McBride on 4/25/2011 08:03:00 PM

David Streitfeld at the NY Times quoted Jennifer Lee, senior economist at BMO Capital Markets today regarding the new home sales report:

"Sales remain very low by historical standards and, considering that a number of home builders reported large drops in orders recently, there is likely more weakness ahead."
I agree with Lee that there is more weakness ahead, however the recent "large drop in orders" for homebuiders was for Q1, and the Census Bureau report today was for March - so this report tells us about last quarter, not the future for homebuilders (just a few homebuilders have reported - many more will report this week).

According to the Census Bureau, this was the weakest Q1 on record with only 71,000 homes sold, so it is no surprise the homebuilders are reporting a weak first quarter. (Note: record keeping started in 1963). The previous record low was 84,000 in Q1 2009 (also there were 87,000 home sold in Q1 2010).

A key difference between the quarterly homebuilder reports, and the monthly Census Bureau report, is that the homebuilders report net new sales (net of cancellations), and the Census Bureau ignores cancellations (this works out over time). It appears cancellations ticked up in Q1, although nothing like during the worst of the housing bust, and that means the Census Bureau probably over estimated sales in Q1.

Here is a short discussion on cancellations from the Census Bureau.
As a result of our methodology, if conditions are worsening in the marketplace and cancellations are high, sales would be temporarily overestimated.
It would be great if the Census Bureau reported net sales so we could compare to the homebuilder's reports. Oh well ...

Home sales for March:
New Home Sales in March at 300 Thousand SAAR, Record low for March
Home Sales: Distressing Gap
New Home Sales and Inventory Graphs
Existing Home Sales and Inventory Graphs