Worst June EVER for New Home Sales

Here’s a re-post from last June… but it’s going to be the same,

only that much worse… this June.  I’m just sayin…

A friend of mine called me this evening.  He’s a lawyer, but he used to be a real estate and mortgage broker.  He likes real estate and is living in a home with a million dollar mortgage that might appraise for a half a million.  He really wants to believe that real estate is “coming back”.  No, check that… he needs to believe that real estate is coming back.

I’ve tried to tell him that it’s not on several occasions, but it starts to feel like telling a kid Santa isn’t real, so I let it go.  What are the five stages of death again… Denial, Anger, Acceptance… I can never remember those stages for sure.  Anyway, he’ll get there in his own time, we all will.

The thing about his call this evening is that he was all excited to tell him how June housing sales data came in higher than expected.  He had been saving it for me all day, no doubt.  And he said it as if it was proof positive that I… the doom and gloomer… was wrong about real estate remaining in a free fall for the foreseeable future.

For the last year, at least, I’ve been telling him that there was no real estate market… that tax incentives and the Fed’s buying of mortgage backed securities, along with FHA, Fannie and Freddie were all propping things up artificially and that when that stimulus ended, housing prices would commence falling through the floor.  He didn’t believe me, I could tell.

Just as I said they would, housing sales fell off a cliff in May, which was the second easiest prediction in history, the first being my forecast that auto sales would fall of a cliff when the Cash-for-Clunkers silliness came to an end.  But then towards the end of the month the government announced that they would extend the tax incentive program for those that signed contracts by April 30th, but were still in the middle of a sale, until September 30th, so that there’d be time for these folks to close.

Okay, so what would you expect to happen in June?  Wow, that’s a tough one.  How about this: housing prices won’t fall through the floor yet because of the last minute tax buyers.  They’ll fall off the proverbial cliff a little more in July, and a little more in August and then a little more in September, when the tax incentive effect will be all gone.  Genius, huh?

So, he called me today because he had read the headlines and the media was saying that June housing data had come in much “better than expected”.  He drew today’s headlines like a gun.  Ha, ha… he was saying inside.  See, you were wrong… there is a housing market… recovery… whatever.

Unfortunately, my friend is often an idiot.  It’s not that he’s not smart, it’s just that he’s often an idiot too, and this was one of those times.  Let’s take a look at the headlines of today together, shall we?

Here’s how Reuters reported the latest data on housing sales:

Stocks Gain on New Home Sales Data

(Reuters) – An upbeat outlook from FedEx, coupled with encouraging home sales, lifted U.S. stocks on Monday, keeping the S&P 500 above 1,100 for a second day and suggesting the rally could last.

A surprising 23.6 percent jump in new home sales in June from May countered some disappointing data in recent weeks that had increased concerns the economy may slip back into recession.

The Dow Jones U.S. Home Construction Index gained 2.9 percent. PulteGroup Inc., up 4.7 percent at $9.07, led the home builders’ index higher.

And here’s how the Wall Street Journal reported the news about home sales:

NEW YORK (Dow Jones)–U.S. stocks got off to positive start for the week, advancing Monday on light trading after a jump in new-home sales and continued enthusiasm over second-quarter earnings.

Providing some relief from the recent stream of weak economic data, new-home sales jumped 23.6% in June from the previous month, much better than the 3.7% gain expected by forecasters.

Housing data provided a bright spot early to kick off the week, with Hugh Johnson, chief investment officer at Hugh Johnson Advisors, focusing on the 1.4% drop in inventories.

“The inventory number was very good, suggesting there is not a big overhang–and that’s good news,” he said.

And again, by the Wall Street Journal… this time contrasting housing data against sales of U.S. Treasuries:

NEW YORK (Dow Jones)–Treasury prices slipped Monday after a better-than-expected report on U.S. new home sales and as market participants began to push prices down ahead of this week’s sale of $104 billion in Treasury notes.

Prices were lower after a report that showed home buying in the U.S. surged in June after a May plunge caused by the end of a government tax credit. Sales rose 23.6% from the prior month after tumbling 36.7%. The strong increase offered investors some hope about the downtrodden U.S. housing sector, prompting them to part with some of their low-risk Treasury securities.

And here’s MarketWatch, which is also owned by the WSJ:

WASHINGTON (MarketWatch) — U.S. sales of new homes scored a better-than-expected rebound in June after having plumbed record lows a month earlier, government data showed Monday.

Sales rose 23.6% in June to a seasonally adjusted annual rate of 330,000, the Commerce Department reported.  Economists said the gain wasn’t a sign of strength but was welcome nonetheless, coming after a reading for May that turned out more dismal than first projected.

New-home sales for May plummeted a revised 36.7% to a record low 267,000 level after a federal subsidy for home buyers expired. This is a steeper drop than the 32.7% fall and 300,000 in annualized sales that the government initially estimated.

Wait just a minute here… what was that?  May sales plummeted EVEN MORE than the government first said they did?  So, the government had said they fell by 32.7%, with sales of 300,000… but now they’re saying Ooops, and it’s really 36.7% and 267,000 sales?  That’s a pretty good Oppps, don’t you think?

I kept on reading until I found this little gem buried towards the bottom of the MarketWatch article:

The government cautions that its housing data are subject to large sampling and other statistical errors. Large revisions are common.

The standard error this month was 15.3%.

Okay, hold on… what in the Sam Hill is a “standard error?”  It’s a statistics term, used by market research geeks, mostly. First of all, it’s an estimate of the standard deviation of the sampling distribution of means, and by “means” I mean, as opposed to medians.

You can think of the mean as the average, and the median as the number in the middle of a set of numbers.  For example, there are 1o people on a bus, and each makes $50,000 a year. So the median and the mean are both $50,000.  Then the bus stops, one person gets off and Bill Gates gets on.  Now the median income on that bus is still $50,000, because that’s still the number in the middle, but the mean (think: average) goes up to… I don’t know… a zillion dollars a year, because Bill Gates makes many zillions of dollars a year.  Get it?

Oh, who cares… this is boring me to tears, I can only imagine how you’re feeling about now.  I even tried looking it up to see if I could find an easier way to explain it, but this is what I got:

“Numerically, it is equal to the square root of the quantity obtained when s squared is divided by the size of the sample.”

Oh great, now I’m getting confused.  Look, here’s all you have to know… the “standard error” is an estimate of how accurately a slice of pie represents the whole pie, how’s that?  When the slice is representative of the whole pie, the “standard error” will be a low number.

And the point is… 15.3% does not strike me as a low number in this instance, which is to say that the government statistics are just SWAGs (Scientific Wild Ass Guesses) and nothing more.  Don’t you wish they’d just say they’re guessing in the first place?  I’d be okay with them guessing, that’s what they’re doing anyway.

Okay, so you now know the difference between median and mean, and May sales were adjusted down from their original “fell-off-a-cliff” type number.  Got it.

Here’s some of what the National Association of Realtors (“NAR”) added to the picture:

Inventories of unsold homes increased 2.5% to 3.99 million in June, representing an 8.9-month supply, the highest since August 2009. In coming months, the supply is expected to rise above 10 months, putting downward pressure on prices, said Lawrence Yun, chief economist for the real estate agents’ lobbying and advocacy organization.

If inventories remain “very high” over many months, prices could fall further, Yun said. Prices have already overcorrected, so further declines should be modest, he said.

The median sales price rose 1% in the past year to $183,700 in June, the NAR said. Prices through the first six months of the year are essentially unchanged from the first six months of 2009.

Sales are expected to pause for three to four months following the tax credit, the NAR economist said. “Only when jobs are created at a sufficient pace will home sales return to sustainable healthy levels,” Yun said.

Now you see, here’s a guy who needs to be taken out back and beaten with the Yellow Pages for Brooklyn, New York.  First of all, he makes absolutely no sense whatsoever.  I read what he had to say three times and I have no idea what he’s trying to say.  I would have read it a fourth time, but during the third time through, I got dizzy, hit my head on the lamp next to my chair, fell backwards and knocked myself out.

I’m going to assume that because his name is Yun, English is his second language, and leave it at that.  I’m not saying that in a pejorative way, I just prefer that explanation to the other possibilities, which are that he’s either trying to confuse people, lying through his teeth, or a functioning moron.

Now, here are some sales numbers from the NAR, and check out how they add up:

First-time buyers bought 43% of the homes in June, down from 46% in May. All-cash buyers accounted for 24% of sales, compared with 25% in May. Investors bought 13% of homes.

Wow, so 43% + 24% + 13% = 80%!  So, 80% of all the houses sold in this country in June were either first timers, cash buyers, or investors (think: flippers)?  And that’s based on data with a “standard error” of 15.3%?

Yep, that’s some real estate market, I’ll tell you what.  Right after I’m done with this article, I’m going to go list my house, because I’m sure the cash buyers and investors are looking to pay the asking price, aren’t you?

And then this from the Federal Housing Finance Administration (“FHFA”):

National home prices were down 1.2% compared with a year earlier, FHFA said.

The expiration of the tax credit has devastated the housing market. Housing starts fell 19% combined in May and June. New-home sales plunged 33% in May.

Didn’t the NAR just say that home prices rose by 1% during the past year?  Well, no actually… they said the “median” price rose by one percent.  Perhaps the FHFA means the “mean” or average.  Or perhaps they mean something else.  Or perhaps, because the whole thing is based on government data that has a “standard error” of 15.3%, the FHFA and the NAR are both pulling their numbers out of their respective tushies.

The NAR then poses the following as their closing question:

“The big question is whether the housing sector can strengthen from here.”

Is that their “BIG” question?  I wish my life were that simple.  If that were my “BIG” question I’d be sitting pretty, don’t you think?  Unfortunately, my “BIG” questions are things like, how in the world am I going to make my mortgage payment, support my family, buy my wife a new car, send a daughter to college… stuff like that.

However, I do like to be helpful, so I’d like to volunteer to provide the NAR with an answer to their “BIG” question: No, dummy… don’t be ridiculous.  There’s no secondary mortgage market, and the banks are in worse shape than they were a year ago when they were insolvent.  Aren’t you paying attention to what’s going on in this country and around the world.  Don’t listen to Geithner, he hasn’t uttered a word of unadulterated truth since 2009 when he was forced to admit that he had lied on his tax returns… no wait… it was a mistake, that’s right.  Sorry about that… a mistake… an oversight… by the guy who runs the New York Federal Reserve Bank… I remember now… I apologize.

The FHFA ended their article with this piece of foreboding prose:

“Most economists believe the tax credit pulled forward sales that would have taken place later.”

Uh oh… that can’t be good for the “will-the-housing-market-strengthen-from-here crowd, can it?  I don’t know, I’m no Realtor, so I’ll have to ask my friend.

Fabulous economics and finance blog, Calculated Risk shows the numbers in detail.

Adjusted down to a rate of 267,000 annual sales was the worst month on record.  That “rate,” and I do love the way they report monthly numbers as an “annual sales RATE,”  means that 22,250 new homes were sold in May… assuming the number doesn’t get revised lower next month or at year end, and I’m betting they will, by the way.

And the annual sales rate for June of 330,000 is just 30,000 a month, again according to Calculated Risk.  If you’re a numbers person, CR is the best a presenting them, so do check it out.

And Seeking Alpha has a slightly different take on June housing sales data being horrible… or rather, same take some different sources.

My point (or my question) is a little different… I understand how my friend could jump on the positive headlines about housing sales in June… he wants to believe it… needs to believe it.

But how and why does the Wall Street Journal participate in such obvious nonsense?  And how does such news end up causing the stock market to go up, even for an hour.  What’s the deal?  Don’t these people read… or think for that matter?

I don’t know the answer to these questions, but I do know this… I’m glad I stopped getting my news from the “news” years ago.  I don’t know how people do it.

We’re going down for a good long time… and everyone should have known that last year at the latest.  We had maybe a year to positively affect our path, but that time is long over.  Now, all we can HOPE for is to hear a yes to the question: “Mr. can you spare some change?”

Oh, and one more thing… until we stop the foreclosure crisis, there is no recovery coming and none possible.  I know, Geithner doesn’t seem to get that, but he’s not in touch with anything in this country at the street level.

It’s time to move to Acceptance… time to save ourselves… this hope stuff is not a strategy.

Mandelman out.