New Home Sales Went Up. So What?

October 25th, 2007

October 25, 2007 - Here’s another story that belongs in the “More Worthless Manufactured Key Economic Indicators Released by the Government” statistic. Out of Washington D.C. at 10 AM this morning, this story was released

WASHINGTON (MarketWatch) - Sales of new homes (in the U.S.) rebounded in September from summer sales levels that were much weaker than previously reported, the Commerce Department reported Thursday. Sales increased 4.8% to a seasonally adjusted annual rate of 770,000 from a revised 735,000 in August. Previously, August’s sales had been reported at a 795,000 pace. September’s sales were slightly higher than the 758,000 pace expected by economists. The three previous months were revised sharply lower, which means the housing market was much weaker in the middle of the year than previous believed. Sales of new homes are down 23.3% in the past year.

Now the consensus was for new home sales to come in around 760,000 to 780,000 which was about spot on as the reported figures came in at 770,000. Now that would have been a decline from previous month figures at 795,000 and more bad news for the housing market. So how do you spin bad news into good news that the sheep herd will follow? Revise last month’s sales figures down enormously from 795,000 to 735,000. Now we have a healthy increase month to month! And incredulously I watched homebuilding stocks rise the very minute this “good news” was released. In addition, U.S. stock markets rebounded from morning lows to turn higher on the release of these “good” home sales statistics. Looks like the federal spin doctors achieved their goal.

On the U.S. Census Bureau’s website, this is how new home sales are defined: “A sale of the new house occurs with the signing of a sales contract or the acceptance of a deposit.” The house can be in any stage of construction: not yet started, under construction, or already completed. Typically about 25% of the houses are sold at the time of completion. The remaining 75% are evenly split between those not yet started and those under construction.” Hmmmm. So 75% of new home sales are for homes not yet started or still under construction. And with this being a buyer’s market and not a seller’s market in the U.S., we should assume that of those 75%, all will be completed and sold for skinny, weak margins, right? Right. I have no idea why the masses look to such indexes as accurate barometers of the economy. Next thing you know, we’ll hear that inflation is still in check, haha.

Technorati Tags: new home sales, flawed government statistics, erroneous government statistics, housing bottom

Entry Filed under: General, The Biggest Investment Myths, U.S. Stocks