New Home Orders: When Up is Really Down
If my previous rants on the inability of both the NAR and Foreclosures.com to properly perform basic trend analysis has taught HW readers how to pick the truth behind the spin, today's news that new home orders were "up" 16.3% should have had your sirens blaring. That upwards bounce was -- say it with me -- monthly, not yearly*. Every serious economist on the planet should have laughed out loud when they read the headlines at media outlets like SmartMoney and MarketWatch and even the Associated Press. Editors love to headline a new record, whatever it is, and no matter if it's one that completely skews the real story -- after all, eyeballs on pages is what makes advertisers happy. And nothing gets eyeballs on pages like some sort of record being broken. In spite of the cheering over monthly gains, what, pray tell, did the yearly numbers show? A 10.6 percent drop versus April 2006 for new home sales volume. But wait, it gets worse: that drop in sales volume took place IN SPITE of the biggest year-over-year price decline in housing in more than 30 years. Not even a fire sale by home builders could pump up sales volume enough to beat year-ago levels. Just imagine if the price cutting had been more moderate: We could have been looking at a 25 percent drop year over year in sales volume, or greater. I've read more than a few stories today painting this as patently good news. There is surprising strength in the report, yes -- sales volume made a strong rebound. But it's important to take the context into account: prices took a nosedive for it to happen, and in spite of the monthly rebound, we're still not within sniffing distance of last year's sales numbers. If anything, this report might be somewhat deflating to housing bears, since it at least would seem to show that the bottom isn't completely falling out of the housing market -- although we certainly came close during March. Any recovery in both mortgages and housing will start to gain momentum much later this year, IMHO. * nerd note: I realize that the monthly comparisons were adjusted to remove the effects of seasonality, but comparing a measure of estimated annual sales velocity using seasonally-adjusted month-to-month comparisons is still far less accurate than comparing the year-ago annual velocity, especially in terms of trying to track market movement. In plain English: things aren't as bad this month as last month, but they still aren't good. UPDATE: Housing Doom has a great post on this same subject. I don't know that I buy the bit on seasonal variability in twist's post (since the monthly numbers have been seasonally-adjusted), but her discussion of the confidence interval on the data is particularly on point.