Another Look at New Home Sales
As we wait for the 10:00 am Existing Home Sales Data (I will be on the beach by then) let's have yet another look at the New Homes numbers from yesterday.
Last night, Larry derided our very straight forward analysis of New Home Sales as "tortured logic." As noted yesterday, Homes are not impulse purchases, and double digit single month gains are highly aberrational, typically followed by mean reversion.
If that analysis is not to your taste, consider these other factors:
• The 16.2% jump in April sales was the biggest in 14 years -- as Bill King noted, that should’ve triggered warning bells immediately.
• The rise in sales were due mostly to a "35% surge in ‘homes not yet started.’ Completed home sales were virtually unchanged m/m (31k from 30k).
• About 2/3 of April sales were for homes priced under $300,000.
King's most damning observation about April's New Home Sales data is based on the most recent few years of April data: They ALL have all been dramatically revised downwards:
-April 2006 New Home Sales were initially reported as +4.9%, but were later revised to a
DECLINE of 2.6%.
-April 2005 was initially reported as +0.2% but was later revised to a DECLINE of 5.1%.
And finally, King asks, "How is it that the ‘bad weather’ that diminished retails sales did not affect new home sales?"
I think we already know the answer to that one . . .
Friday, May 25, 2007 | 08:23 AM | Permalink
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Comments
Toll Brother reported a decline of 79% in earnings. The home builder blamed declining property values and CANCELLATIONS.
Posted by: Scot | May 25, 2007 8:44:51 AM
Toll Brother reported a decline of 79% in earnings. The home builder blamed declining property values and CANCELLATIONS.
Posted by: Scot | May 25, 2007 8:46:07 AM
Again, we saw the exact same sort of abberation last year. It was revised away.
There's no mystery to be solved here folks:
http://money.cnn.com/2006/04/26/news/economy/newhomes/index.htm
Posted by: super-anon | May 25, 2007 8:54:18 AM
I think Larry Kudlow is one of the great spin masters of the universe. He makes no attempt to analyze any data; he simply looks for opportunities to push his self serving view. If he can’t find a way to spin things his way, he changes the subject or shouts over the speaker.
I guess you go on the show for publicity. In show business, all publicity is good publicity; it that true for finance?
Posted by: Sailorman | May 25, 2007 8:54:24 AM
It is the information age; it is the internet age. Everybody assumes they have instant access to real-time information, but we are finding out that there is hardly any report, statistic or record that is reliably accurate on that basis.
Posted by: wally | May 25, 2007 9:04:57 AM
It is the information age; it is the internet age. Everybody assumes they have instant access to real-time information, but we are finding out that there is hardly any report, statistic or record that is reliably accurate on that basis.
Posted by: wally | May 25, 2007 9:05:05 AM
Kudlow is not a complete idiot, at least I don't think he is. I think he, like many others, does tend to bend the facts to fit his personal beliefs be they right or wrong.
Even though he may be a nice guy, I personally think he is still a boob. Which is why he and Cramer are still ment for each other after all these years.
Posted by: KP | May 25, 2007 9:07:57 AM
Existing home sales down 2+%. It's the weather again. We need to find a way to seasonally adjust the weather!
Posted by: Ross | May 25, 2007 11:34:44 AM
for all of those reasons and likely a few more the new home sales were largely an exercise in spin, a public relations scam. Existing home sales today goes along way to further proving that point. Nevertheless, the damage was done and those who benefited form the exhuberance, the bliss, the soulful joy of once again pulling the wool over the eyes of the public made out like thieves because they were the OFFICIALLY sanctioned released figure...= public believes like blind lemmings, they must be true..wow, gotta go buy a house. The game goes on...sad.
Posted by: Stuart | May 25, 2007 12:40:27 PM
for all of those reasons and likely a few more the new home sales were largely an exercise in spin, a public relations scam. Existing home sales today goes along way to further proving that point. Nevertheless, the damage was done and those who benefited form the exhuberance, the bliss, the soulful joy of once again pulling the wool over the eyes of the public made out like thieves because they were the OFFICIALLY sanctioned released figure...= public believes like blind lemmings, they must be true..wow, gotta go buy a house. The game goes on...sad.
Posted by: Stuart | May 25, 2007 12:43:00 PM
Let's assume for a second that all the numbers are legit. Builders dropped their prices 11% and sales took off 16%. Existing home prices rose in April (from March) and sales fell 2.6%, seems like the markets are working to me.
Cut your prices and you'll get a better volume number, the home builders seem to have caved in and figured it out, now it's up to individuals to start lowering their prices and eventually the market will start clearing out this unbelievable amount of inventory.
Posted by: Michael Donnelly | May 25, 2007 12:46:48 PM
Barry,
There is an inconsistency here with your analysis of the retail sales report 2 weeks ago.
On New Home Sales, you cite the fact that the 16.2% is the biggest in 14 years as triggering warning bells.
But why didn't the 2.3% drop in April retail sales, the biggest ever recorded according to you, trigger the same warning bells?
You're looking for mean reversion here. Doesn't the same logic suggest mean reversion on retail sales this month?
Posted by: Greg Feirman | May 25, 2007 2:29:45 PM
Jacking new home sales by the HBs is extremely simple. "$1 down, no payments 'till 2008". That shows up in the stats as a home sale. What are the chances that the illegal signing this document is going to cough up the $250k for the house once it's complete? Next to zero. The builders don't want to build "Spec" homes, so they simply allow anyone with a heartbeat and a pen to "buy" a house. But, you say, it will increase cancellations in 2008? Ha, this is the American stock market, by that point the HB CEO's options will have vested and he will have enriched himself further. Longevity of the company? Ha, that's an afterthought. He will blame the illegals who canceled the contracts since the bankruptcy will be their fault.
Posted by: Shawn H | May 25, 2007 6:51:35 PM
According to David Seiders, the economist for the National Association of Homebuilders, the 'New Home Sales Report' has a margin of error of +/– 13%. He went on to say:
"My own surveys are still showing actual deterioration of builder attitudes about the market, about the demand side of the market. My data I get from large builders, sales volume actually seasonally adjusted deteriorated in April, it did not improve."
.
Posted by: VJ | May 26, 2007 1:30:43 PM
Barry,
The truth is, the government has no clue if sales went up or down, since 0 was included in the range for 3 of the 4 regions.
You've got 3% of all homebuilders reporting, they self report, nobody takes out cancellations, and the government thinks this is factual? Give me a break!
In the Northeast, new home sales are -46% to 61% or anything inbetween.
We know sales went up for 3% of the builders somewhere in the country, but what happened with the other 97% of builders?
What about the can rate?
Why not eliminate Commerce reporting? No data is better than this crap.
Posted by: Schahrzad Berkland | May 28, 2007 10:42:25 PM
