As a result of our methodology, if conditions are worsening in the marketplace and cancellations are high, sales would be temporarily overestimated. – Census Bureau on its new home sales estimates methodology
In fact, conditions are deteriorating in the marketplace – and have been since July 2013. In past reports I have shown that there is a definitive downtrend in sales volume since then, despite the statistical abuse imposed on the data by the National Association of Realtors and the Census Bureau. And in fact, if you scour homebuilder quarterly reports like I do, you know that cancellation rates have been trending higher.
New home sales are based on a data sample of contracts signed. The Census Bureau admits that in areas in which it does not get a data inquiry response, it bases its “contracts signed” estimate on the number of building permits issued. That’s absurd because the issuance of a permit does not even guarantee that a spec home will be built.
The Government has thus estimated that new home sales contract signings plunged 11.4% in March from February. This result for March is even worse than it appears on the surface because historically March is statistically the best or second best sales month of the year for new construction home sales AND mortgage rates have been trending back down toward all-time record lows.
I’ve written an article for Seeking Alpha which goes over the March new home sales data and explains why the price of lumber is forecasting another possible crash in the housing market. You can access the article here: March New Home Sales.
Here’s a preview of one of the graphs: