Interest Rate Roundup

Tuesday, January 09, 2007

More bad news on home orders

The publicly traded home builders are starting to release preliminary earnings and orders news, and once again, the figures leave much to be desired ...

* Meritage Homes said net sales plunged to 1,201 homes in the fourth quarter from 2,072 a year earlier. That's a 42% drop in units. Order value dropped even more -- 51%. You can deduce from the figures that average prices slipped from $348,900 to $296,400 ... or 15%. The company said order cancellations surged to a record high of 48% of orders in 2006.

* D.R. Horton said net sales orders dropped 23% in terms of units, and 28% in value, in its fiscal first quarter. That means the value of each order slipped to $262,000 from $279,000, according to Bloomberg. That's good for a decline of 6%. Its cancellation rate was 33%, down a bit from 40% in the previous quarter, but still extremely high from a historical standpoint.

This also just serves to underscore my point from a few days ago -- that the official new home sales and inventory figures are flawed. That's because they don't capture the impact of cancellations. If you sign a contract to buy a new home, then walk away later, the sale doesn't get subtracted from the official tally. The home also comes off the inventory rolls with the initial contract, but doesn't get added back at the time of cancellation.


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