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Monday, September 26, 2022

New Home Sales and Cancellations: Net vs Gross Sales

by Calculated Risk on 9/26/2022 12:31:00 PM

Today, in the Calculated Risk Real Estate Newsletter: New Home Sales and Cancellations: Net vs Gross Sales

A brief excerpt:

Tomorrow (Tuesday), the Census Bureau will report new home sales for August. The consensus is for 500 thousand on a Seasonally Adjusted Annual rates (SAAR) basis, down from 511 thousand in July.
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When looking at new home sales, we are interested in net sales for each month, however the Census Bureau reports gross new sales. A simple equation would be:
Sales (net) = Sales (gross) – Cancellations + Sales of earlier cancellations.
In the long run, the cancellation terms balance out, and the Census Bureau numbers are what we want. In other words, Sales(net) = sales(gross). But in the short run, when cancellations increase, the Census Bureau overestimates sales; and when cancellations decrease, the Census Bureau underestimates sales.
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The bottom line is - with rapidly rising cancellations - the Census Bureau will overestimate sales tomorrow (and underestimate new home inventory).
There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/