Bloomberg and Calculated Risk explain what I’ve been wondering about for a long time: is the revision to New Home Sales due to adding back the cancellations? Answer: no. Cancellations, which have doubled, are NEVER subtracted from New Home Sales, nor added back to inventory!
CR explains:
“1) When a house is sold, the Census Bureau includes the sale and reduces inventory by one.
2) If the house is cancelled, the Census Bureau does nothing. Sales are not reduced; inventory is not increased.
3) When the same house is resold, the Census Bureau does nothing. It is not included in Sales.”
So the effect is they are overstating sales and understating inventory. New home sale cancellations have doubled.
Quote from Bloomberg:
“What makes the current situation so worrisome is the “unprecedented inventory overhang, encompassing new and existing markets and many of the largest metropolitan areas,” Carson says. “Its sheer size raises the odds that prices will fall more and longer nationwide than they did in the 1990s.”” – Bloomberg