Economists at the National Association of Home Builders say it takes six months to identify a trend, but new home sales are definitely slowing down. The question is will the pullback be temporary?

New home sales data is volatile anyway, with sales impacted strongly by the availability and cost of materials, land and consumer demand. Weather plays a big role in second-guessing the housing market. Warm weather in January could prop up the housing market in some areas, but so far, the data points the other way.

The Census Bureau reported that new homes sold at an annual rate of 1.23 million homes in January, down from 1.3 million sold in December. That's less than Wall Street was expecting.

But is it the calm before the storm? Home builders are reporting an increasing number of cancelled new home orders. A survey by The National Association Of Home Builders said that one in five members are reporting more cancellations than six months ago, and four percent of home builders surveyed said the increase in cancellations has been significant.

Typically, new home cancellations can be explained by job loss. If job growth slows, or people feel in jeopardy of losing their jobs, they will tend to back away from high-ticket purchases such as homes, cars and appliances.

But the home builders found that only 15 percent of homebuyers cancelling their contracts cited job losses as the cause. Forty-five percent of home buyers said their cancellation was due to an inability to sell their existing home. One-third said they were not being able to qualify for financing due to rising mortgage rates.

But NAHB Chief Economist David Seiders and others believe there is another reason for cancellations not included in the survey -- that real estate investors who are ordering new homes with the intention of selling them quickly in a hot real estate market are starting to pull out of the real estate market.

If speculators are pulling out of the new home market, is demand still strong with homebuyers who intend to occupy their homes?

Toll Brothers, a national luxury builder, said that not only is the company seeing investors bail out of some markets, but new signed contracts are also falling -- 21 percent compared to a year earlier.

Experts believe that the home buyer intending to live in a home is reluctant to cancel an order, even if the market seems to have softened, but speculators will gladly leave deposits on the table if they think they will more money by staying with the investment. The exit of any large number of buyers is going to have a negative impact on the market, driving home prices downward.

"If you've overbuilt the market and sales get cancelled, you have to do something with the homes," said Seiders. "The incentives we're seeing builders offering are clearly designed to support prices and stop cancellations."

New home supplies have reached 5.2 months of inventory on hand. That means it will take approximately 5 months to sell through existing inventories to zero homes on hand. New home builders are quick to slow down building new homes in order to let standing inventory get absorbed by the marketplace, so absorption should be fairly quick. If home cancellations continue and new orders don't pick up again, then home builders will have reason to worry.

On the other hand, if the slowdown is only temporary, another housing boom could be triggered, particularly if there is nowhere else investors prefer to put their money.

Published: March 2, 2006

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Blanche Evans is the award-winning senior editor of Realty Times, the Internet's leading independent real estate news service. She is featured daily on the Realty Times Video Network in the "Realty Viewpoint" segment. Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and has been twice recognized as a "notable." In 2005, she was named "Top Reporter Covering the NAR" by Delahaye-Bacon's. Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. To contact Blanche, email her at . For more articles by Blanche, click here.