by Calculated Risk on 11/07/2006 04:14:00 PM

Credit Suisse has estimated the actual inventory of New Home sales based on cancellations. First, for an excellent article on the impact of cancellations on reported New Home Inventories, see Caroline Baum at Bloomberg: Think Housing's Stabilized? See Cancellations

... cancellations are rising, and they aren't being captured in the aggregate statistics because of the way the survey is designed. Hence, sales are being overstated and inventories understated.
...
The Census Bureau, which is one of the Commerce Department's statistical agencies, counts an initial new home sale: Sales go up and the ``for sale'' inventory is reduced. If the sale is canceled, it isn't reflected in revisions to previous months. What happens? When the home is ``resold,'' statisticians ignore that transaction.

From Credit Suisse today: "Inventory in the system is higher than reported." Click on Graph for larger image.

This graph shows the months of inventory based on the Census Bureau report. Based on Credit Suisse's analysis, the actual months of inventory is closer to 8 months. Note: Credit Suisse excludes non-started units.