Its funny how two people can look at the same data point and draw opposite conclusions. That’s what makes a horse race.
Sometimes, an inherent bias or wishful thinking comes into play; other times, its partisan ideology getting in the way. And in some instances, a little bit of common sense goes a long way.
Take as an example some recent data on appliance sales. In Q3, Best Buy reported a 10% jump in sales of major appliances (refrigerators, stoves, washers, dryers) at stores open at least a year, versus a 21% drop for the year-ago period.
Some analysts are suggesting this provides “a glimmer of hope in housing.”
“It’s the first real indication that the housing market is turning,” says Craig Johnson, president of Customer Growth Partners, a retail consultant in Connecticut. Johnson says he’s hearing from department managers and shoppers in the stores he surveys that the big appliance sales are “non-duress.” That means the purchases are being made voluntarily, not because an appliance has failed and left the consumer no choice . . .
Why are consumers making “non-duress” purchases? Well, if its because they are buying existing homes and replacing the older appliances, that would in fact be a positive sign for the housing market.
But we should not put the cart before the horse. Housing is falling more slowly year over year, and on a monthly basis has stabilized, thanks to 5% mortgage rates and government subsidies. That hardly accounts for the surge in sales (especially versus last year’s collapse).
My explanation involves two factors: Underwater homeowners unable to move, and Deflation.
The typical underwater homeowners are betwixt and between worlds; The average home buyer of the past decade is likely not so underwater as to be willing to walk away; yet they don’t qualify for a mortgage mod. For most of these folks, their best option is to hunker down where they are, and ride the housing collapse out.
If you know you are stuck somewhere for five years (or longer), then you probably want to make that stay as comfortable as possible. Given the big drops in prices of major appliances — aka Deflation — an upgrade or replacement becomes a simple way for any family to raise their standard of living.
Higher end appliances have seen prices plummet 30-40%; We looked at a large French door refrigerator 6 months ago (2 doors up to, a bottom freezer drawer, integrated ice/water) for $2500; Its now $1899. The big washers and dryers (on pedastal drawers) have also seen hefty discounts. I imagine the price drops across stoves, microwaves, dishwashers are also substantial.
And America is still a nation of consumers, albeit somehwat chastened. More than a year into after the credit collapse, there must be some pent up demand out there.
Hence, a family that is underwater, but are in the 90% of the labor pool with an active breadwinner, can still spend some money on these home upgrades. And if my anecdotal experience at Best Buy, PC Richard, and Sears is anything to go by, in store credit for people with decent credit ratings are plentiful.
Consider this bit of weak analysis:
Some experts see clear stirrings in the long-morbund housing market. If efforts to ease foreclosures succeed, “there could be significant recovery in housing values in 2010,” says Michael Feder, president and CEO of Radar Logic, a real-estate data and analytics company. The firm’s composite index of 25 metropolitan areas found prices fell just 0.7% in the month ended Oct. 15, the smallest decline for that month since 2005. “Current trends are making us optimistic about demand,” says Quinn Eddins, director of research.
There is so much wrong about that, I don’t know where to begin. 1) Where foreclosures have picked up, real estate activity has risen; 2) Foreclosure abatements only delay the inevitable repricing; 3) Less bad i s not the same as optimistic; 4) By conventional metrics, housing prices still remain over-priced relative to their historical means.
Perhaps wishful thinking analysts are confusing correlation with causation. When appliance sales tick up, its usually follows a big move upwards in housing sales. That does not really seem to be the case presently.
If anything, its likely the opposite . . .
White (Goods) Christmas?
Home for the Holidays
ROBIN GOLDWYN BLUMENTHAL
Barron’s, DECEMBER 22, 2009
Housing Is Shaky With U.S. Aid. Without It?
WSJ, DECEMBER 22, 2009