New Home Sales: Behind the Headlines

by Alex Stenback on October 25, 2007

A lot of hay being made in the press today over the "positive" new home sales number with a headline that almost universally reads like the image above.

But Barry Ritholtz over at the Big Picture, among others, illustrates once again that there is more to the story:

First, we see the headline number. This month, September 2007 sales of new one-family houses were up 4.8%, at annual rate of 770,000 (SA)…[snip]…look at margin of error. The monthly gain of 4.8% was within the "estimated average relative standard errors" of 10.3%. This means the data point was "statistically insignificant."

Second, we look at the year-over-year data, which in this case was 23.3% below the September 2006 estimate of 1,004,000…[snip]…The year over year number however, at 23.3% — 8.0% — is greater than the margin of error, and therefore is statistically significant.

Also mentioned by others and worth pointing out here – these new home sales figures do not account for cancellations after the initial contract is signed with a builder.  Cancellation rates with major builders are humming along at a 25-70% clip, depending an whose numbers you are looking at.
· Stocks Up After New Home Sales Rise [AP via WCCO]
· No, New Home Sales DID NOT Rise [TheBigPicture]

So what about the local picture?  The Minneapolis Area Association of realtors reports that new home sales for the year are down 22%, so contrary to yesterday’s existing sales data, we are right in line with national averages.

Ugly stuff indeed.
Source: MAAR Housing Supply Outlook: October 2007 [PDF via]

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