August 24, 2007

JustQuotes: New Home Sales - A Real Recovery Or A Red Herring?

"U.S. stocks rose after new home sales [up 2.8 percent to an annual pace of 870,000] and durable goods orders topped economists' forecasts [820,000] in July, spurring speculation the economy can weather losses in credit markets."

``We don't see a recession in the cards,'' said Hayes Miller, who helps manage $38 billion as portfolio manager of global equities at Baring Asset Management Inc. in Boston. ``There's still going to be enough corporate spending, there's still going to be enough investment, there's still going to be enough government spending.'' (U.S. Stocks Gain as Home Sales, Durable Goods Top Forecasts)

On the other hand, ``Call me a skeptic here, but I'm going to need to see a couple more months before I believe this is something that's really happening'' in new home sales, said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. ``Lending standards have gotten tighter and so this should weigh on the housing numbers near-term. Maybe it wasn't showing up in July, but for August and September it will.'' (U.S. Economy: Durable Goods Orders, Sales of New Homes Increase)

First Published: August 24, 2007 8:18 AM

Comments from "Plugged In" Readers

I think transaction volumes have gone off a cliff in August. I predict that any comparison of August 07 versus July 07 or August 06 will show a steep decline.

Posted by: anono at August 24, 2007 9:26 AM

And let's not forget that new home sales increased partially because their prices fell. Even reported median prices for new homes are going down, and those don't include free cars/appliances/vacations/plasmas, or any of the other nonsense that builders are throwing in. So the real drop in new home prices is currently understated.

Posted by: Dude at August 24, 2007 10:04 AM

New home sales are recorded sales; they aren't closed sales. In the current lending environment, I don't see how the number is particularly meaningful.

Posted by: Amen Corner at August 24, 2007 10:11 AM

Always the skeptic, I try to look to the motivation behind the report. So let's go back to the source of the report, someone working for George Bush, the head of the republican party, who knows that when people feel good about the economy, they tend to vote Democrat. When they are worried, the tend to vote republican.

OK, so if this is the case, wouldn't Mr. Bush's department want to report bad numbers? No, because the election is too far away. He needs to engineer a lousy economy in time for the election, not now.

So what's his #1 goal? Preventing any rate cut by the independent uncle Ben. So in the same way I said yesterday that the industry players would exaggerate the potential for bad news, Mr. Bush needs to exaggerate the potential for good news.

You can expect the numbers to be "revised" downwards, sometime after Sept 18.

Do I think that the "no rate cut bet" from yesterday is a winner? Not necessarily. Ben isn't stupid, he can see all this posturing from yesterday and today. It's his job to see through it and he knows there is an election coming up, just like he knows those guys at countrywide want him to put everything back the way it was.

BTW, does this increase the chance that the democrats will want to keep Mr. Bush from succeeding by engineering their own bailout plan? The answer is no, because Bush could fail (he seems to do that a lot) and then they'd be mixed up with something they can, if they stay out of it, pin solely on his administration for lack of oversight. So they'll talk, hold hearings, etc. and then sit back and watch so that they can have two disasters to pin on the Pres.

And don't forget, when watching the stats, that some people who will never qualify next month have rate locks for the biggest mortgage they are probably going to qualify for in the next decade. Those people are desperate to buy anything: they know the lock won't renew. I think you'll see existing home sales remain pretty buoyant - it might even go up for a few weeks as this last holdout group of pre-meltdown-qualified buyers buys everything in sight.

Posted by: tipster at August 24, 2007 11:05 AM

Huh? People vote Democrat when the economy is good? Like in 2000? And people vote Republican when the economy is bad? Like in 1992? Maybe there was sarcasm there that I missed.

Posted by: NativeSon at August 24, 2007 12:23 PM

Regarding the sources of the sales data, as Amen Corner pointed out, new home sales are recorded sales - not closed sales. Does this mean they are recorded and reported by the builders / developers? Would they show as sold in MLS (if the properties had been listed in MLS)?

Also, for existing home sale data, who reports this data - the title companies, MLS?

Posted by: howard at August 24, 2007 12:30 PM

this number is often skewed for the simple fact, that others pointed out, is the new home sales are not closed sales but recorded sales, the number will be revised several times to factor out things like cancellations.

So, the current's month number includes many sales that ultimately will not happen and then it is compared to the prevoius months number which has been revised to factor out things like cancellations.

so the month to month figures, in a falling market, can be kind of bogus. Again, the year over year comparision of the revised numbers, which won't be final for a few months, is the only good comparison

Posted by: Badlydrawnbear at August 24, 2007 12:56 PM

and why is wall street celebrating a 10% DECLINE in YoY sales? (and that's before factoring out cancellations)

http://biz.yahoo.com/ap/070824/economy.html?.v=20

Sales are down 10.2 percent from last year, and the weakness is expected drag on into next year.

Posted by: badlydrawnbear at August 24, 2007 1:51 PM

Stock market was happy today with durable goods and new home sales number

Posted by: Jamie at August 24, 2007 1:56 PM

Look at a 10-year picture of new home sales... we're back around the norm

Posted by: Jamie at August 24, 2007 1:57 PM

bdb- the yoy sales declines are not that significant to investors because everyone expects it. We're coming off a boom, there will be fewer sales. Sales are down in S.F. over 40% from 2004 but the market isn't tanking. The significant indicator is where are sales compared with long term historical averages, when population, income etc... is taken into account. I'm sure this data exists somewhere.

Posted by: anono at August 24, 2007 2:07 PM

The recent (ie the last 14 days) volume declines look really steep compared to the same periods in '06,'05,'04. Maybe it's a blip or a just a short-term reflection of the recent market tremors - and maybe it's not a trend, but it does seem to indicate that deals are not getting done.

Posted by: Data at August 24, 2007 2:55 PM

Read the fine print -- it's up 2.8% with a margin of error of +/- 13%, and the average revision is 3%. The number is thus meaningless, so let's ask the question -- Do you believe that more homebuyers are coming to the market? Where are they getting their loans?

Posted by: seamus at August 24, 2007 3:32 PM

Just call me Dummy if I am missing something:

Sales are up but from when?

If it is from June, isn't July traditionally a moving month (kids out from school, good moving weather, etc...)?

And, why would anyone be rallying around July sales given that the Wall St mortgage blowout happened in August?

Help me understand...

Posted by: Dummy at August 25, 2007 3:30 PM

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