We have 3 major Housing releases this week:
• Existing Home Sales (1/25 10:00)
• S&P Case-Shiller HPI (1/26 9:00)
• New Home Sales (1/27 10:00)
I expect the trio will show that housing remains weak, that we are not seeing much in the way of any structural improvement in the Real Estate market; but that the pace of the overall collapse has moderated. We will see if there is any evidence of a significant decline in inventory, and whether affordability is improving.
We will also hear lots of noise about how the end of the first time home buyers tax credit is distorting the numbers. Perhaps it would be more accurate to say that the tax credit itself is what distorted the numbers, and its expiration allowed the data to normalize:
“National Association of Realtors is expected to announce an 11.6% drop in December existing-home sales to a seasonally adjusted annual rate of 5.78 million, according to economists polled by Dow Jones.
The large drop is exaggerated by the initial Nov. 30 expiration of the government’s first-time home-buyer tax credit, which previously boosted sales by some 28% from August through November to an annualized rate of 6.5 million units, the most since early 2007.
The tax credit has been extended through June, but most analysts don’t expect sales growth to resume until February or March. In the meantime, further declines in existing-home sales, which make up nearly 90% of the market, are sure to raise concerns about the recovery in housing and the broader economy.” (emphasis added)
You know the early data must have been pretty awful when a group of spinmeisters like the NAR are forecasting a 12% fall. Credit the WSJ writer of the paragraph above for appropriately noting the increase caused by the tax credit, and putting today’s likely drop into better context.
But one must also remember that home sales are a very seasonal phenomena. For each of the past several Springs, we have seen overly optimistic discussions of a Housing recovery that never was. In the final analysis, what was heralded as a recovery turned out to be little more than seasonality.
This reminds investors of a different bias to be on guard against: The bullish optimism endemic among Wall Street analysts and trade groups. Oftentimes, parts of the press can get swept up in the enthusiasm. When the cheerleaders missed the imminent market collapse, it sent the happy talk underground. Recent signs of economic stabilization, however, have allowed the buds to push through the frozen soil. That bias is why I push back against what I see as human foibles in the MSM.
We all fight a losing battle against our own wetware. I try to maintain a vigil against my own biases, some times less successfully than others. When ever we get something right — a bearish market call, a warning about Housing — there is a tendency to overstay your welcome with the winning call for too long. This can potentially lead to over-confidence.
Regardless, my goal is to understand the latest data, put it into context, separate the signal from the noise. Hopefully, you find this sort of analysis useful in your own data consumption and investing.
Existing Home Sales, Non Seasonally Adjusted, Explained (March 25, 2008)
Revisiting Housing Seasonality & the Perennial Bottom Callers (July 28th, 2008)
The Annual Existing Home Sales MSM Errata (March 24th, 2009)
Understanding Seasonal Adjustments (October 24th, 2009)
Figures Mask Signs of Life in Housing
WSJ, JANUARY 25, 2010