No, New Homes Sales DID NOT Rise . . .

Thursday, October 25, 2007 | 10:12 AM

Look, we have to stop meeting this way.

Some half-assed piece of data comes out, the markets spasm, then you want to understand what the data really means.

OK, let's look at New Home Sales.

U.S. Census Bureau and the Department of Housing and Urban Development releases New Home Sales each month. The data contains three elements that contextualize what they mean, and how much significance they have, beyond the headline number.

First, we see the headline number. This month, September 2007 sales of new one-family houses were up 4.8%, at annual rate of 770,000 (SA). 

Second, we look at the year-over-year data, which in this case was 23.3% below the September 2006 estimate of 1,004,000.

Third, we look at margin of error. The monthly gain of 4.8% was within the "estimated average relative standard errors" of ±10.3%. This means the data point was statistically insignificant not statistically significant

The year over year number however, at 23.3% -- ±8.0% -- is greater than the margin of error, and therefore is statistically significant.

Note: These aren't my opinions; these are simple mathematical facts that the Commerce Dept. notes in the footnotes of its release. Based on this data, we know for sure that year-over-year sales decreased; What we can tell about month to month sales is that they may -- or may not have -- increased (we just don't know).

Next, we look at the revisions: For the month of August 2007, the original sales report was for 795,000 new homes built (annual rate). This was adjusted downwards this month to 735,000. An apples-to-apples comparison (original release to original release) shows a decrease, not an increase in new homes sales. Comparing the original (but soon to be revised) September data to the revised August data presents a misleading picture.

Lastly, we need to consider Cancellations. The Census Bureau does not make adjustments to the new home sales figures to account for cancellations of sales contracts. As we have seen, the Cancellation rates of Home Builders have been huge:

Firm . . . Cancellation rate for Quarter
Centex (CTX) 35%
MDC Holdings (MDC) 57%
KB Homes (KBH), 50%
Lennar Homes (LEN) 32%
D.R. Horton (DHI) 48% 
Beazer Homes (BZH) 68%
NVR (27%)

So, you can further discount the reported data by some amount relative to the above cancellation rates . . .


UPDATE:  October 25, 2007 3:15pm

Compare & contrast the NAR with the National Association of Home Builders:

"David Seiders, chief economist for the builders' trade group, said Thursday that the latest report has some questionable readings, including a 38 percent rise in sales in the West, which he expects will be revised significantly lower in subsequent months. Without that reported increase, sales would have fallen from the already weak revised level in August.

Seiders also pointed out that the report does not capture cancellations by buyers who were unable to get financing or had to pull out of sales because they couldn't sell their homes.

"We saw an upsurge in cancellations in August and September, according to all the builders," he said. "The net sales, if we could get that number, would clearly be weaker than this. It's too early to get hopes up on this report."

An honest trade group. Go figure . . .


Commerce Dept, SEPTEMBER 2007

Home sales: Bad and worse than they seem
Chris Isidore, October 25 2007: 12:31 PM EDT

Thursday, October 25, 2007 | 10:12 AM | Permalink | Comments (33) | TrackBack (2) add to | digg digg this! | technorati add to technorati | email email this post



TrackBack URL for this entry:

Listed below are links to weblogs that reference No, New Homes Sales DID NOT Rise . . . :

» Barry Ritholtz is Shrill Again ! from Tech Policy
If you have been a reader of The Big Picture for as long as I have been, you would know that every now and then Barry can not take the endless spinning of data anymore. For the latest installment: No, New Homes Sales DID NOT Rise . . . or as I put it, ... [Read More]

Tracked on Oct 25, 2007 11:57:24 AM

» New Home Sales Rebound! (Sales drop 23.5%; Prices fell 13%) from The Big Picture
Yesterday morning, Commerce released the New Residential Sales data. Encouragingly, the media has caught on to the monthly nonsense built into the way numbers get reported, as evidenced by this WSJ headline: New-Home Sales Post Modest Gain Because Prio... [Read More]

Tracked on Nov 30, 2007 7:19:52 AM


I could not agree more. Going through the figures in detail then comparing to the AP and CBS marketwatch news releases I thought I was comparing two different reports. The media headlines on this morning's new home sales news release are so bad, they can only be construed as purposeful in their intent to mislead. It seems the David Lareah a.k.a. Lawrence Yun syndrome is spreading faster than the California fires.

Posted by: Stuart | Oct 25, 2007 11:01:52 AM

The comments to this entry are closed.

Recent Posts

December 2008
Sun Mon Tue Wed Thu Fri Sat
  1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31      


Complete Archives List



Category Cloud

On the Nightstand

On the Nightstand

 Subscribe in a reader

Get The Big Picture!
Enter your email address:

Read our privacy policy

Essays & Effluvia

The Apprenticed Investor

Apprenticed Investor

About Me

About Me
email me

Favorite Posts

Tools and Feeds

AddThis Social Bookmark Button

Add to Google Reader or Homepage

Subscribe to The Big Picture

Powered by FeedBurner

Add to Technorati Favorites


My Wishlist

Worth Perusing

Worth Perusing

mp3s Spinning

MP3s Spinning

My Photo



Odds & Ends

Site by Moxie Design Studios™