New Column up at Real Money (12/01/05): Home Sales Data: Lots of Huffing and Puffing

RealMoneyAn expanded version of yesterday’s commentary is up on Real Money, titled Home Sales Data: Lots of Huffing and Puffing. You will no doubt recognize many of these points disucssed previously.

Here’s an excerpt:

"Tuesday’s new-home sales data of plus 13% month over month was such an outlier that I had to dig into the details of the
report, which came from the U.S. Census Bureau and the Department of Housing and
Urban Development, especially given all the other nonconfirming data we have
seen. We also learned Tuesday that unsold house inventory is at its highest
since April 1986. (Note that the existing-homes number is about six times the
actual number of new homes.)

Other data are similar: MBA mortgage applications were soft, NAHB/Wells Fargo
notes that new sales have been cooling, and the Housing Market Index (HMI) is
less than robust. The Wall Street Journal quoted Banc of America
Securities analyst Daniel Oppenheim as saying the report "appears to be an
aberration." His firm’s survey of homebuilders shows that demand has been

So too says the National Association of Home Builders’ chief economist, Dave
Seiders, who termed the latest sales data "bizarre." He said his group’s recent
surveys indicate that sales generally have been slowing.

All these anomalies caused me to tear apart the Census Bureau’s data and its
methodology (along with the assistance of the very able statisticians at
Census). I discovered three items worth mentioning:

  1. The data appear to be "statistically insignificant," according to the Census
  2. Strong historical numbers (like plus 13%) tend to be subject to revision but
    mostly stay net positive, albeit somewhat moderated.
  3. Over the past 15 years, double-digit months have generally been followed by
    flat to negative data the next month (mean reversion).

That about sums it up.

Home Sales Data: Lots of Huffing and Puffing
Real Money, 12/01/05

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What's been said:

Discussions found on the web:
  1. calmo commented on Dec 1

    So although the very able statisticians at the Census Bureau are very able, the publishers of the release are less so? Someone above the abled ones erased the staticians caveat “This is Hog Wash” to a miniscule footnote?

  2. B commented on Dec 1

    Something isn’t right in paradise. Housing boom. Housing bust. Big inflation. No inflation. Fed done soon or so the market thinks. Copper, paladium, gold, silver, oil, lumber, coal, uranium and on and on at all time highs. Consumer tapped. Consumer spending like drunken sailors. Long bonds rising. Global liquidity shrinking. The Federales printing money for the Iraqi war and Hurricane Katrina. None of these metrics match.

    So, what gives? Gold is NOT going up because people in India & China are driving demand. Do some of these gold analysts work at the NRF? That is total bull. Gold is going up for one of three reasons. 1) Gold interest is peaking because of financial imbalances and unprecedented debt around the globe and there is a flight to safety that used to be the home of dollar denominated assets exclusively. 2) The Fed is going to quit hiking and there is concern they will repeat the fiasco of the 1970s and inflation will accelerate. 3) The Fed is going to cut rates soon and the dollar is anticipated to weaken thus driving gold interest. I’d say number two is especially interesting given Japan has been in a twenty year deflationary environment and Gold/The Nikkei are coming out of their funk simultaneously. Coincidence? Is big inflation on the horizon? Long wave cycles are valid because human behavior never changes.

    Somebody is wrong on this housing gig. I say bubble schmubble. Condos get hurt in Miami? Yes. Speculators get hurt in San Diego? Maybe. Home prices go down? Not! That is, unless people plan to live in huts and the Federales put a halt on immigration. How are home prices going to drop when replacement costs have skyrocketed? Carpet (chemicals), gypsum, lumber, roofing (petroleum), wiring (copper), steel, concrete, block, brick and every part of the supply chain have skyrocketed. The COST of replicating a new home has skyrocketed. Wholesale home pricing collapses aren’t in the cards unless we live in dirt huts. (Last time I checked, we had lots of dirt.) While I view deflation as the worst evil and largest problem we could ever encounter, we aren’t going to see that in home prices any time soon. A softening? I can buy that if the consumer gets spooked and tightens their purse strings. Price drops? Nothing significant for single family homes. You see, if homes drop in price precipitously, homebuilders will be squeezed to the point of it being a losing proposition to build anything as their costs have risen so much. This imbalance will fix itself. And it would have fixed itself left to market forces even though The Maestro caused it. He can’t likely fix it. Just like the Fed didn’t have the kahunas to fix the inflation problem of the 1970s. That is, until John Wayne Volcker came to town ready to kick some booty.

    You see, home prices have appreciated significantly because of more than speculation. The cost of building has gone through the roof. 25-30% of home price appreciation, conservatively, over the past three years has come from rising costs. Someone is wrong. Either raw materials are going to tank or the long bond is signaling a recession or I’ve been smoking too much crack and none of this will ever make sense.

  3. The Nattering Naybob commented on Dec 1


    Talk about non confirming data, it gets even better with todays PCE chain deflator, and ensuing market party.

    Checking the fine print in the report, Income down, disposable income down, consumption expeditures up, sounds like a nice stagflation squeeze to me.

    Yet the hook in mouth media glory boys trumpeted “a lowered PCE chain deflator, signaling that core inflation is in check.”

    This is another econometric canard that is being foisted on an unsuspecting and gullible public.

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