"Altruistica": Seeking a return to full financial disclosure and regulatory oversight. A financial market analysis blog for "entertainment purposes" only by an experienced CFA seeking new hedge fund engagements for investment writing and analysis. The author has experience investing internationally, running a hedge fund, making angel investments, and helping launch five startup companies. Investors should do their own due diligence.

28 November 2006

Phony NAR Data "Justifies" Stable Market Today

Absurd- the NAR data released today claimed a 0.5% sequential improvement in Existing Sales for October at a SAAR rate of 6.24M units (actually DOWN 2.1% sequentially on reported data). Prices dropped at a record 3.5% annualized pace to $221K, ignoring the contract cancellations and end-of-month option deals which save the balance sheet of these homebuilders which carry "orders" at last transaction prices. Remember, none of this data reflects other promos, games, financing incentives, toss-ins, kick backs and other gimmicks. Frankly, the reported NAR data on housing is a farce.$FILE/EHSreport.pdf

Look at this data- it smells:

* as reported, existing home sales dropped 8.3% Y-Y and 16.2% in the West but the report plugged the idea that Western sales rebounded from September by 6.9%. Yeah, sure, October really brought the buyers back in;

* Inventories have climbed steadily to 7.4 months supply or 3.854M units- an incredible understatement since the actual supply is nearly 10 months (some peg it at 13 months, counting unoccupied units);

* Pricing fell 3.5% Y-Y to $221K but reported prices in the Midwest and West were claimed at FLAT ! This is a complete joke relative to the real world experience.

And see this tidbit:
Foreclosures? Housing Bubble? In Southern California? Impossible!
Last week DataQuick released quarterly foreclosure numbers for the state of California. If anything the numbers again are pointing to a bursting housing bubble. Take a look at the chart on the left:

And Barry Ritholtz mocks NAR:
Existing Home Sales: Unspinning The NAR Numbers

Posted on Nov 28th, 2006

Barry Ritholtz submits: It's "Trash a Trade-Group's Spin" day here... After this morning's look at the National Retail Federation's nonsense, we might as well have a go at this morning's enzyme-free donkey fazoo from the National Association of Realtors.

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.


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