Its "Trash a Trade-Group’s Spin" day here at the Big Picture. 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
“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 $229,000 in October 2005. It was the
largest year-to-year decline ever and a record third consecutive
decrease, NAR said." (emphasis added)
Somehow, Lereah overlooked the small issue that October’s 3.5% decline in the national median
existing home price follows September’s 1.8% year-on-year
decline. (Whoops! I’m sure he’ll follow up on that next month).
How common is this annual fall? CNN/Money noted:
"While month-to-month declines in home prices are not uncommon,
year-to-year drops had been rare before the recent housing slump. Last
August was the first month in 11 years to see such a decline."
Let’s move on to Confidence — is it really returning? Certainly not based on the increase in inventory:
"Inventories nationally increased 1.9% at the end of
October to 3.85 million units. That represents a 7.4 month supply at the current pace
Hmmm, how about that unusual spike in 2005 which skewed the data? Let’s have a closer look at that, and see how unusual it realy is. We go to Kevin DePew at Minyanville, who is on the case:
"Lereah claims the October decline in national median prices is "skewed"
due to "an uncharacteristic spike in October of last year. Sure enough, in October 2005, the national median price jumped 16.6%
year-on-year, which followed September’s 13.4% year-on-year jump, which
followed followed August’s 15.8% jump, which followed July’s 14.1%
jump, which… wait a minute… followed… STOP IT! That’s not an
uncharacteristic spike. That’s a freaking TREND!"
Finally, I am not sure just what it means to say that "sales are lower than sustainable due to psychological
factors." My best guess is that’s a polite way to say: "You want howe much for that house? What are you f%$#@ 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.
Existing Home Sales Rise in October, Market Stabilizing
NAR, November 28, 2006
Existing-Home Sales Climb, But Prices Show Record Drop
November 28, 2006 10:14 a.m.
Home prices post record drop in October
CNNMoney.com, November 28 2006: 10:56 AM EST
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