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New Home Sales and Cancellations: Net vs Gross Sales

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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.

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.

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/

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