One Blip at at Time
Debate among economists about whether the February new-home sales release from the U.S. Census Bureau, the Commerce Department and the Department of Housing and Urban Development was postive or negative is a glass-is-half-broken (yes, not half-empty nor half-full) argument.
Anyone who claims that the gist 120-word summary for Febuary 2009 one-family new residential sales fits his or her predictive model for how housing is behaving is not mortal, or lying.
Sure, if you’re applying disciplined economic analysis, there’s no other way to look at data for Febuary 2009 vs. data for February 2009, (notwithstanding the one-day difference due to 2008 being a leap year).
But those who are raising a ruckus about the media numbskulls who are getting it wrong by noting that the month-to-month upward swing is a positive miss at least part of the point: The barrage of adverse headlines contribute to negative sentiment which feed negative trends. Barry Ritholtz’s The Big Picture blog is on a withering tear against print and TV media for inaccurately reporting on the new-home sales data.
A parade of the mathematically innumerate business writers (and even worse headline writers!) continue to misread data. The latest evidence? New Home Sales.
After incorrectly reporting the Existing Home Sales, the mainstream media misread the Census department report of New Homes.
No, New Home Sales data did not improve. In fact, they were not only not positive, they were actually horrific. The year over year number was a terrible down 41%. Sales from this same period a year ago have nearly been halved.
Why did the media report this as positive? If you only read the headline number, you saw a positive datapoint: February was plus 4.7% over January.
To get the the facts, you need to read below the headline. In the present case, it wasn’t the seasonality factor that was confusing, it was the “90-percent confidence intervals” — or as it is more commonly known, the margin of error. (more from The Big Picture post)
There are several issues at work here, but for home builders and real estate professionals, the best advice might be this. Put your fingers in your ears and don’t listen to anyone who nay-says the little gains you’re making in your communities.
Economists–whether they’re positive or negative about the data–want an audience for their business and career interests. It seems as if some of them make a good living by telling people that the media has no credibility, and asking why anyone reads a newspaper or watches a news telecast.
Economists who profess that they’ve been right all along about what is going on in the economy are doing so because the marketability of their theories redound to their financial well-being.
Journalists, on the other hand, work for at least two bosses these days. One is their management, and the other is their audience. Always and forever, the audience is the toughest boss when it comes to the so-what? factor of relevance and accuracy of facts and perspective. Also, journalists, in more ways than ever, work collaboratively with their audiences on getting the whole story that matters, especially as citizen journalism surfaces as part of every media title and channel.
It’s illuminating to get corrected perspective and insight on the new-home data. Here’s how avuncular Calculated Risk steers people to understand how not to get too overjoyed at a blip up in new-home sales from January to February.
Click on image for access to Calculated Risk post.
This graph shows the February “rebound”.
You have to look closely – this is an eyesight test – and you will see the increase in sales (if you expand the graph).
Not only was this the worst February in the Census Bureau records, but this was the 2nd worst month ever on a seasonally adjusted annual rate basis (only January was worse).
Calculated Risk’s assertion–oft-repeated these days whether the media headline is positive or negative–is that a sales volume bottom for housing is likely in 2009.
It’s important to understand, however, the level that neither The Big Picture nor Calculated Risk matter when it comes to the viability and vitality or morbidity of home builders and real estate.
Their measures of correctness or error are on a national, macro level. They can be right, and still get it totally wrong when it comes to understanding what’s going on in home building and sales organizations in the first half and second half of 2009.
Even with the full measure of their economic skills, they’re not set up to catch the first flickers of recovery, just as they do not get the challenge of marketing and selling about 340,000 homes a year into the teeth of this environment.
Clearly, home builders are telling us that where they can get some traction with their prospective home buyers, they’re making some progress. In California, where a $10,000 tax credit jolt compliments the national $8,000 first time buyer tax credit, you’re starting to see home price correction and stimulus combine to pull people off their duffs on the sideline.
While home builders, manufacturers, and trade groups are willing to support the $8,000 tax credit initiative in the fledgling $787 billion economic stimulus program, their point organization, the Fix Housing First Coalition, is carefully watching the California front in hopes of renewing its case for a bigger one-time credit for all home buyers.
Yesterday, two House Republicans, Eric Cantor (R-Va.) and Mike Pence (R-Ind.) introduced a “Responsible Homeowners Act” measure that would bring back a $15,000 tax credit for buyers of primary residences who put a minimum of 5% down on their purchase.
Economics, being the dismal science that it is, has not solved the math problem of where home prices need to correct to and what policy pushes are necessary to wrench open the spiggot of real estate transaction.
Which means home building operators and their leadership need to keep turning a deaf ear to the blather about national data points–especially ones that dowse morale, confidence, and focus–and just keep selling so that one blip can turn into two, and 30 days later, maybe a third blip in a row.
Then, even the nay-saying-est economists around will have to admit that you’re creating a blip tide, otherwise known as an economic trend.
Comments
Leave a Reply