OCTOBER NEW HOME SALES

Has the real estate market hit the bottom?

Don’t bet on it. Despite the aggressive incentives offered today by builders, new home sales are slowing dramatically. According to the report issued today by the U.S. Census Bureau and HUD, October sales are 3.2% lower than last month and 25.4% off the October 2005 pace. As dramatic as these figures are, they actually understate the slowdown.

That’s because of the way the Census Bureau and HUD handle canceled sales contracts. You see, they consider a home sold when the “contract {is} signed or earnest money exchanged.” And when, as it so often happens these days, the buyer cancels a contract, those sales figures are not revised. “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.”

To compensate, the Bureau refrains from counting the sale a second time when the home is eventually resold. In other words, each home is counted only once. It all works out in the end says the Bureau. Fair enough. But in a market like ours with a lot of cancellations, that methodology makes things look better than they really are.

There are many who believe that the worst is over. I’d love to pop the cork, but it may be too soon to celebrate.