More Good News for Homebuilders

First, a few positive nuggets for homebuilders:

Rick Palacios Jr, Director of Research at John Burns Real Estate Consulting, pointed out that cancellation rates are “normalizing”. As I noted earlier, the Census Bureau overestimates sales, and underestimates inventory when cancellation rates are rising, see: New Home Sales and Cancellations: Net vs Gross Sales. This might be reversing now since cancellation rates have started to decline. When a previously cancelled home is resold, the home builder counts it as a sale, but the Census Bureau does not (since it was already counted).

Rick Palacios Jr. @RickPalaciosJr

@conorsen Builder cancellation rates normalizing as of February should help as well (chart below). It'll be interesting to hear what $LEN has to say tomorrow on the trend.

And Odeta Kushi, Deputy Chief Economist at First American, pointed out that the lack of existing home inventory is a positive for homebuilders (linking to an article by chief economist Mark Fleming:

Odeta Kushi @odetakushi

From 2000 until the pandemic, new homes on avg made up ~11% of total inventory. In the Jan 2023 report, that share of new homes reached 27%. When existing homes for sale are nearly non-existent, a new home at the right price may be an attractive option.

blog.firstam.comWhy Home Buyers May Find More Opportunities with New Homes this SpringFirst American Chief Economist Mark Fleming shares his proprietary Potential Home Sales Model, examining the housing market’s performance against its potential.

Here is a graph from the First Am article. The historically low levels of existing homes inventory is a plus for home builders.

And Ali Wolf, Chief economist at Zonda, wrote yesterday:

Ali Wolf @AliWolfEcon

Notable improvements in how long it takes to build a home. Getting *closer* to pre-pandemic times for many builders

Last October I wrote: Some "Good News" for Homebuilders

I noted:

[T]he good news for the homebuilders is activity usually picks up quickly following an interest rate induced slowdown (as opposed to following the housing bust when the recovery took many years).