With the recent turmoil and subsequent contraction in the mortgage markets, an unprecedented amount of RE sales transactions have been canceled, and fallen out of contract. The abruptness of this development actually causes the census's numbers to over report sales, making things seem more optimistic than they actually are - which should be alarming since the last housing report was pretty pessimistic. Below is a description of how the Census Bureau factor in Home Cancellations to the total home sales numbers.
"How does the Census Bureau handle canceled sales contracts in the published estimates of New Home Sales?
The Census Bureau does not make adjustments to the new home sales figures to account for cancellations of sales contracts. The Survey of Construction (SOC) is the instrument used to collect all data on housing starts, completions, and sales. This survey usually begins by sampling a building permit authorization, which is then tracked to find out when the housing unit starts, completes, and sells. When the owner or builder of a housing unit authorized by a permit is interviewed, one of the questions asked is whether the house is being built for sale. If it is, we then ask if the house has been sold (contract signed or earnest money exchanged). If the respondent reports that the unit has been sold, the survey does not follow up in subsequent months to find out if it is still sold or if the sale was canceled. The house is removed from the "for sale" inventory and counted as sold for that month. If the house it is not yet started or under construction, it will be followed up until completion and then it will be dropped from the survey. Since we discontinue asking about the sale of the house after we collect a sale date, we never know if the sales contract is canceled or if the house is ever resold. Therefore, the eventual purchase by a subsequent buyer is not counted in the survey; the same housing unit cannot be sold twice. As a result of our methodology, if conditions are worsening in the marketplace and cancellations are high, sales would be temporarily overestimated. When conditions improve and these canceled sales materialize as actual sales, our sales would then be underestimated since we did not allow the cases with canceled sales to re-enter the survey. In the long run, cancellations do not cause the survey to overestimate or underestimate sales.
Following is a comparison of U.S. housing sales, construction, and mortgage rates.
Most 1-Month 3-Months 6-Months 1-Year 3-Year
Recent Ago Ago Ago Ago Ago ================================================================================ Housing Starts 1,331 -2.6% -7.6% -10.5% -19.1% -34.2% Building Permits 1,322 -4.8% -13.0% -14.2% -23.6% -35.7%
Total home sales 5,605 -4.5% -7.4% -16.6% -14.3% -18.5% New Homes Sales 795 -8.3% -7.7% -5.4% -21.2% -32.3% Existing Home Sales 4,810 -3.8% -7.3% -18.2% -13.0% -18.1%
Total Unsold Homes 4,449 1.9% 4.1% 19.1% 15.3% 60.7% New Homes Unsold 529 -1.5% -2.6% -2.8% -6.9% 30.6% Existing Home Unsold 3,920 2.3% 5.1% 22.9% 19.1% 78.2% Total Unsold as a % of U.S. population 1.47% 1.44% 1.41% 1.24% 1.29% 0.88% ================================================================================
Most 1-Month 3-Months 6-Months 1-Year 3-Year
Recent Ago Ago Ago Ago Ago ================================================================================ Construction Spending $1,166.7 0.2% -0.5% 0.4% -1.7% 11.6% Dodge Construct. Index 132 5.6% 2.3% 1.5% 0.0% 4.4%
NAHB Homebuilders Index 20 -9.1% -28.6% -44.4% -33.3% -70.1% Homeownership rates % 68.2% n/a n/a 68.9% 68.7% 69.2% Rental Vacancy rate % 9.5% n/a n/a 9.8% 9.6% 10.2% Total Home Improve ($B) $217.3 n/a -3.8% -5.9% -6.4% 9.3% Architecture Index 53.9 -10.2% -2.0% 2.7% -9.3% 1.5% Foreclosures 243,947 35.8% 38.5% 74.3% 115.3% n/a
-------------------Weekly---------------------- Mortgage Volume 654.2 2.0% 1.6% -2.7% 15.5% -9.7% 1-Yr Adjustable Rate 5.60% 5.60% 5.66% 5.40% 5.47% 3.97% 30-Yr Fixed Mortgage 6.42% 6.52% 6.69% 6.16% 6.31% 5.72% ================================================================================ NOTE: All figures use seasonally adjusted data. Housing units are in thousands. Construction spending is in billions of dollars.
SOURCE: Mortgage Bankers Association, National Association of. Realtors, the U.S. Census Bureau, the National Association of Home Builders, and the F.W. Dodge Division of The Mcgraw-Hill Companies.
Unsold Homes in U.S. May Reach 6.5 Million, CreditSights Says
By Sharon L. Crenson
Sept. 28 (Bloomberg) -- Unsold homes in the U.S. may rise 27 percent to an ``eye-popping'' 6.5 million because of rising foreclosures and the number of canceled contracts on new houses, CreditSights Inc. analysts said in a report today.
About 940,000 homes could go on the market within the next year as a result of subprime foreclosures, delaying a recovery in demand until 2009 or later, the New York-based credit and market research company said.
``We believe the current level of unsold homes is understated and that there will be a further deluge of homes up for sale coming over the next few months,'' Frank Lee and Sarah Rowin wrote in ``Housing Weekly Monitor: Let's Make a Deal.'' ``This of course will be extremely bad news for home builders, prolonging any recovery until well beyond 2009.''
CreditSights said the number of unsold homes on the market is underestimated by the U.S. Commerce Department and homebuilders because they fail to include canceled contracts for new homes. Speculative buying, too many second home purchases and lending to subprime borrowers pushed the inventory of unsold homes to 5.11 million as of Aug. 31, double the number on Jan. 31, 2004, according to Bloomberg data.
At the end of June, cancellations would have added 404,500 homes to unsold inventory figures had they been included, CreditSights estimated.
``In contrast to previous housing downturns, the current slump is driven by excessive inventories,'' Lee and Rowin said. ``The traditional drivers of housing demand -- mortgage rates and employment -- have shown signs of recent weakness which will only further complicate the downturn.''
U.S. home sales have been falling for two years, with new house purchases declining 8.3 percent to an annual pace of 795,000 in August and sales of existing homes dropping 4.3 percent to a 5.5 million rate, according to the Commerce Department and the Chicago-based National Association of Realtors, a trade organization.
The proportion of subprime borrowers making late payments on their homes increased to 14.82 percent from 13.77 percent in the second quarter, the Washington-based Mortgage Bankers Association said Sept. 6. Subprime loans are made to people with weak or spotty credit histories.
``Using data provided by the MBA, we estimate the total amount of subprime borrowers reached a total of 6.3 million from 2005 to 2006, the most frantic years for easy and sleazy lending,'' Lee and Rowin said.
To contact the reporter on this story: Sharon L. Crenson in New York at
Last Updated: September 28