The data: Existing Home Sales & Prices
The spin? Let's have a look at what the friendly agents at NAR had to say:
David Lereah, NAR’s chief economist, said market fundamentals are improving.
"The present level of home sales demonstrates some confidence in the market, but sales are lower than sustainable due to psychological factors"
“The annual decline in the October median home price is skewed because there was an uncharacteristic spike in October 2005, but the trend for the fourth quarter will be prices remaining slightly below a year ago.
Fundamental's are improving? Well, the freefall in unit sales stopped -- thanks to a record drop in prices:
"The median home price was $221,000 in October, compared with a revised $221,000 in September and $229,000 in October 2005. It was the largest year-to-year decline ever and a record third consecutive decrease, NAR said." (emphasis added)
Somehow, Lereah overlooked the small issue that October's 3.5% decline in the national median existing home price follows September's 1.8% year-on-year decline. (Whoops! I'm sure he'll follow up on that next month).
How common is this annual fall? CNN/Money noted:
"While month-to-month declines in home prices are not uncommon, year-to-year drops had been rare before the recent housing slump. Last August was the first month in 11 years to see such a decline."
Let's move on to Confidence -- is it really returning? Certainly not based on the increase in inventory:
"Inventories nationally increased 1.9% at the end of October to 3.85 million units. That represents a 7.4 month supply at the current pace of sales."
Hmmm, how about that unusual spike in 2005 which skewed the data? Let's have a closer look at that, and see how unusual it realy is. We go to Kevin DePew at Minyanville, who is on the case:
"Lereah claims the October decline in national median prices is "skewed" due to "an uncharacteristic spike in October of last year. Sure enough, in October 2005, the national median price jumped 16.6% year-on-year, which followed September's 13.4% year-on-year jump, which followed followed August's 15.8% jump, which followed July's 14.1% jump, which... wait a minute... followed... STOP IT! That's not an uncharacteristic spike. That's a freaking TREND!"
Finally, I am not sure just what it means to say that "sales are lower than sustainable due to psychological factors." My best guess is that's a polite way to say: "You want howe much for that house? What are you f%$#@ crazy?"
Bottom line: Investors need to look at data sources very very carefully before relying on them -- this is especially true when the source is a trade group, who tend to be non-objective, and indeed have a very specific agenda that benefits from happy talk. In the present case, a strong motivation for transactional business.