In Home Sales, Seasonality Matters, But Raw Numbers Pay the Bills
We still think the jury’s out on what this week’s new home sales data and Case-Shiller numbers mean.
- The bloggers/analysts have seized the high-ground on saying they’re interpreting the data precisely, and with discipline.
- The mainstream media is regarded by said bloggers/analysts as the gang who can’t shoot straight, but they’re making the bigger splashes with their headlines and news flashes.
There is no arguing two important facts, one of which Barry Ritholtz’s The Big Picture blog drums into our thickish skulls. That is that the Census Bureau’s data on new home sales comes each month with a margin of error, and almost invariably undergoes revision down or up. When the percentage margin of error exceeds the percentage gain or loss, then you have to assume that you’re learning approximately zero from the released figure.
Anyone who wants to argue this matter with Barry, be our guest.
So, before getting too thrilled by the new home sales data, factor in the margin of error.
Second, sheesh, remember this business is a seasonal business. God, or whomever, made residential construction a Seasonally Adjusted business. People, despite little more than one in five of them being married-with-children families, still tend to shop in the Spring and buy in the late Spring, early Summer timeframe.
Up, in other words, is only up if it compares with the same time last year, or for many of the previous years. If you can’t sell more houses after the Super Bowl than you can when the National Football League games are on all day Sunday for 20-or-so weeks, then this business is not for you.
Clearly, if a disciplined economic assessment of national housing numbers and what they foretell is what you rely on, then Calculated Risk and The Big Picture are where to look.
Why are the media so fixated on Sequential Ups, when it is year-on-year or seasonally adjusted figures that are the true telltales of the direction? Will calling the housing bottom sell more newspapers or generate higher TV ratings, resulting in more cash for the media? Doubtful. Will real estate advertisers flock back to the media upon word from the editorial side that recovery is no longer as far down the road? Perhaps.
Maybe it’s a case of reporters, editors, and producers not recognizing where the news is in the data, because they’re inexperienced, or obstinate, or overly busy, or maybe just dumb.
Still, by being wrong and undisciplined in their reporting about the data and its meaning, they may wind up being right enough to drive the bloggers crazy. All it will take is for “Animal Spirits” to flip-flop from paralysis to zeal, from fear of buying to fear of losing the opportunity of a lifetime, and the dumbest, most-undisciplined, stubborn, cub business reporter ever might correctly call a turn in the tide of the market.
Many folks who are slogging it out in the residential construction landscape with companies that develop or build homes do not have the luxury to rely much on the disciplined, economically precise sources of insight for their action plans. If they were to guide their companies based on the prognostications of these analysts, they would probably wind up just grabbing what little money there may be in their reserves and go far, far away for a while.
Many of them don’t behave that way. They’re in what they do, many of them, for reasons resembling a vocation. They believe in making new neighborhoods, and employing good people to do that, and building a legacy for their company’s name.
So numbers that are better on a raw, month to month basis, are just that, better. The restrained optimism (remember, the NAHB builder sentiment reading HMI was up only insofar as two more home builders per 100–up to 17 now–see improving conditions in their markets) is by no means more than that. Many, many home builders are probably more bearish themselves about prospects than even the economic blog meisters we quote here so often.
However, to them, the absolute numbers are how they pay their bills. If a public home builder has standing new-home inventory in a community (their store) that is nearing a close-out threshold, it will sell those units at whatever it takes to generate cash, and zero out costs related to keeping that operation going. So, if June’s non-seasonally adjusted national sales number reflected a lift of 3,000-plus new home sales from a month earlier, then those home-sales represent both cash generation and cash preservation.
A lift in new-home sales, in absolute, is a lifeline to companies. Months’ supply of new homes finally encroached into the 8-plus months area for the first time since 2006 sometime.
Employment and the stability of home values are the only two ways there’ll be solid ground for recovery. The only random factor that could trump these forces could be a psychic shift of “Animal Spirts,” which by its nature would not be explained by the disciplined data analysis of the blogger econ gurus.
Meanwhile, there’ll be good reading when, after the Case-Shiller Index offers more “up” numbers for June, we start seeing seasonality and spreading distress kick-start the rate of price-declines to a renewed pace. Or maybe the MSM will have inadvertently gotten things right by bungling the business information but correctly reading consumer sentiment.
Time will tell.
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Are you saying that theCensus Bureau’s data on new home sales is effectively useless? What ashould we depend on?
In this case, a question best answers your question, Builder Jack… For what do you “depend” on U.S. Census Bureau data on new home sales in your business? If we know the answer to that, we might be able to be more helpful.
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