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Delving Deeper Into Housing

The spinmeisters approach to Housing is to live in Goofytown --  and if you check out your maps of Spin City, you will find Goofytown is right near the border of Absurdville. A quick look at the Housing data and charts reveals that the details -- you know, the numbers and charts -- simply do not match up with the spoken words from the dissemblers who endeavor to mislead you.

For example:  Yesterday, we saw New Building Permits drop, and we learned Home Buyer Mortgage Applications fell. That is consistent with what we have seen around our area, heard from the various builders, and learned via the warnings coming out of mortgage writers (See WaMu's conference call yesterday for the ugly details).

Then comes the New Home Starts, and its as if a life preserver was thrown to a drowning man. Part of the problem, however, is in the innumeracy in this nation, and in much of the financial press also.

Here is the data point released by the Census Bureau:

Privately-owned housing starts in September were at a seasonally adjusted annual rate of 1,772,000. This is 5.9 percent (±8.9%)*

Single-family housing starts in September were at a rate of 1,426,000; this is 4.3 percent (±8.4%)* above the August figure of 1,367,000.

What is the mathematical significance of this release? ABSOLUTELY ZERO. Any datapoint below the margin of error is statistically insignificant.

As the Census Bureau notes:

* 90% confidence interval includes zero. The Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero.

Insufficient evidence to conclude the change is different from zero. So September starts up 5.9% with a +/- 8.9% error rate means nothing. Single Family Home starts of 4.3% and a +/- 8.4% margin is meaningless.

However, do note the year over year change from  September 2005 -- down 17.9%, with a margin error of +/- 7.0% actually IS significant. That means the range does NOT include zero, but rather is from -10.9% to -24.9%. This data is consistent with the rest of what we see and hear from builders, mortgage writers and anecdotal evidence.

When you put it into context, the media focus on a phantom data point – one that the Census Bureau explicitly footnotes as “statistically insignificant” to be beyond absurd.

~~~

Next, let's have look at HMI -- the homebuilders sentiment index.  We noted on Tuesday that after 8 continuous months of freefall, there was a tiny blip upwards. To hear the reports on this, you would have thought we were in some new Housing renaissance.

Nope. Get a load of the thrashing my friend Kevin gave this nonsense: NAHB Housing Index Shows Dramatic, Imperceptible Surge:

-"US housing bottoming out!," screamed one headline (sold to you) 
-"Builder Confidence Stabilizes in October" the NAHB said
-A separate article noted the positive nature of the NAHB Index
-The index was up just one point to 31, but this is a positive considering the index has fallen in 13 of the past 16 weeks.

Kevin's take on the charts reveal the absurdity of the hoopla:

It is simply ridiculous to claim this is anything more than a blip.

And since we are speaking about absurdities, let's take a closer look at how home prices have supposedly remained the same:

"In September about 77% of home builders were offering some sort of sales incentive in response to spiking inventories, compared with 58% a year earlier, says Gopal Ahluwalia, staff vice president for research at the National Association of Home Builders."

That's right, if you ignore the 10s of $1,000 of dollars in giveaways builders have used to incentivize buyers, prices have remained the same. With inventories are at all-time highs, giving away granite counter tops, subzero fridges,  covering all closing costs, free trips, inground pools -- even C class Mercedes  -- makes some sense.

But of course, that's simply a way to lower prices for Mr. Smith, without infuriating his neighbor, Mr. Jones, who payed 20% more a year ago.

The Housing led slow motion slow down continues . . .

UPDATE October 20, 2006 2:10:pm

This chart via Asha Banglore of Northern Trust reveals how absurd the spin has become:

The HMI edged up only one point to 31.0 in October. The index tracking present sales was unchanged at 32.0 in October. Indexes accounting for sales six months ahead (41 from 37) and the traffic of prospective buyers (23 from 22) moved up slightly in October.

>

Source:
Builder Confidence Stabilizes In October
NAHB
October 17, 2006
http://www.nahb.org/news_details.aspx?sectionID=134&newsID=3461

Mortgage applications ease 2.2%
CNN Money, October 18 2006: 9:42 AM EDT
http://money.cnn.com/2006/10/18/real_estate/mortgage_applications/

Housing starts pick up unexpectedly
Chris Isidore
CNNMoney.com October 18 2006: 8:43 AM EDT
http://money.cnn.com/2006/10/18/news/economy/housingstarts/

Home builders up ante to lure buyers
Incentives, discounts are pervasive as market slows and inventories climb
John Spence
MarketWatch, 4:16 PM ET Oct 13, 2006
http://tinyurl.com/ya84x9

Factory Sector Shows Widespread Softness
Asha Bangalore
Northern Trust Global Economic Research, October 17, 2006
http://www.northerntrust.com/

Thursday, October 19, 2006 | 10:15 AM | Permalink | Comments (34) | TrackBack (2)
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Comments

If accurate the pickup up in housing starts would be bad news for the housing industry and market in general. The chief economist of the NAHB said as much yesterday - the market is suffering from a supply-driven correction.

The last thing it needs is more supply.

Posted by: anon | Oct 19, 2006 10:22:00 AM