The Real Deal on July's Housing Numbers

Includes: IYR, XHB
by: Markham Lee

In a trend that is started to become annoying the media is once again misreporting housing data:

(From the NY Times):"Home sales perked up in July, a respite for the housing slump, as falling prices appeared to lure more buyers into the market.

But the number of homes for sale increased significantly as well, which could push prices down even further. While lower prices could spur sales, they also cut into homeowners’ equity and household worth.

Sales of previously owned homes, which make up most of the nation’s housing supply, rose 3.1 percent last month, making July the best month for sales since February 2007. Economists had expected an increase of 1.2 percent. Still, sales in July were 13.2 percent lower than the 5.76 million annual pace in July a year ago...

...“Hard to avoid the conclusion that sales have bottomed out,” Ian Shepherdson of High Frequency Economics wrote in a note. A wave of foreclosures and tighter lending standards had scared off many would-be purchasers from the market, which has entered its worst slump since the Great Depression

...Inventories rose 3.9 percent in July, led by a significant jump in the number of apartments for sale. The supply of single-family homes declined, an encouraging sign for the values of those homes."


The best way to look at this is to imagine a situation where an article notes that retail sales declined from December to January, and then makes the claim that retail may be headed towards a downturn as a result. Obviously such an article wouldn't be taken particularly seriously because everyone would know that the change was due to seasonal variations, and not really indicative of a downturn in retail spending per se. Hence the reason we look to YoY changes (comparing apples to apples) in order to determine what the overall trend looks like.

In other words it's rather premature to start making claims of a housing bottom based on the positive in change in sales from a single month, when the YoY numbers showed a decline, inventories increased and median prices decreased as well. The other issue is that a bottom in housing will be comprised of the following: a YoY increase in sales volume, price stabilization and inventories returning to historical levels, unless all three factors are present all you have is an aspect of the housing market showing positive signs, not a true market bottom.

The true story is that while the month to month number was positive, the 13.2% YoY decline in sales and the 3.9% increase in inventories seems to indicate that the market is continuing to worsen. While the decline in single family home inventories is a positive sign, be mindful of the fact that it doesn't include foreclosures that have yet to hit the market nor does it include situations where the owner has given up and pulled the home from the market.

You can read more here.


The NY Times: "Home Sales Increase, and So Do Inventories" -- Michael M. Grynbaum, August 25, 2008

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