Seasonal Homes Sales Trend
By Barry Ritholtz - June 23rd, 2009, 12:16PM
An emailer asks: “Why do you diss the monthly numbers when they are improving?”
Well, because they are not really improving, if you understand the seasonality associated with them.
Let’s have a look at the monthly numbers relative to these seasonal trends. They ALWAYS improve from January through the Summer, as this is the prime season (many families want to be settled in the new house before the new school year begins in September) with actual improvements
The chart below makes it clear that the overall trend is seasonally driven:
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Home Sales Trend, 2005-2009 (NSA)
click for larger chart
chart courtesy of Calculated Risk
June 23rd, 2009 at 12:35 pm
“An emailer asks: ‘Why do you diss the monthly numbers when they are improving?’……They ALWAYS improve from January through the Summer”
I like to point out that saying a springtime m-o-m improvement in housing numbers being a ‘real improvement’ is the same as claiming that April temperatures being higher than March temperatures is proof of global warming. People have no problem getting it then…
June 23rd, 2009 at 12:35 pm
In the Northern Hemisphere of course
June 23rd, 2009 at 12:38 pm
-> An emailer asks: “Why do you diss the monthly numbers when they are improving?”
Why you be dissin’ the monthly numbers, yo?
Seriously, how hard is seasonality to understand? That’s straight out of statistics 101.
June 23rd, 2009 at 12:43 pm
Unless you’re a real estate agent, EXISTING home sales ain’t that an important an economic measure.
June 23rd, 2009 at 12:46 pm
I especially like the grease pencil that CR fails to put in his charts. We realize here at TBP that CR has no F411 to educate…..
June 23rd, 2009 at 12:46 pm
I might even add that the seasonality from March to current of this year had the two added benefits of a $8000 tax credit and record low interest rates.
June’s #’s are going to be really interesting considering that mortgages have jumped a bit. Decembers should be good too after that tax credit expires.
June 23rd, 2009 at 12:47 pm
it hurts to think that this type of thing, even, needs further Clarification..
past that, above, nice points~
though, maybe next time, for the 102 Course, we can cover Seasonal demands for Cash Holdings..
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=seasonal+demands+for+cash+holdings
http://scholar.google.com/scholar?q=seasonal+demand+for+cash+holdings&hl=en&lr=
June 23rd, 2009 at 12:59 pm
Or as I put it on my own blog, every spring the snow melts, and the river level rises. That doesn’t mean the drought is over, does it?
June 23rd, 2009 at 1:26 pm
Couple that with the serial correlation of housing prices…
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=953210
(so past housing-price movements, more often than not, do predict future house prices movements, unlike equities which don’t) …and you know that housing prices are heading down.
The assumption I question is that lower housing prices are bad for the economy. Why isn’t “rent” and “cost of shelter” a “tax cut” like a drop in oil prices? Why isn’t this a good thing? I think it might be, if all those excess jobs in RE move elsewhere, which is what happens in the US.
That’s after all what a recession is, when our economy is producing stuff we don’t need and needs to re-adjust …and we definitely don’t need any more housing.
June 23rd, 2009 at 1:30 pm
Some of those unused homes could be set up to be new unemployment offices…
http://news.yahoo.com/s/nm/20090623/us_nm/us_usa_economy_layoffs;_ylt=Ap9XLIxB56l7V4NIJTQdHOJxieAA;_ylu=X3oDMTMwb3BkbjFsBGFzc2V0Ay9ubS8yMDA5MDYyMy91c19ubS91c191c2FfZWNvbm9teV9sYXlvZmZzBGNwb3MDNgRwb3MDNgRzZWMDeW5fdG9wX3N0b3JpZXMEc2xrA3VzbWF5bWFzc2xheQ–
U.S. May mass layoffs jump tie record: Labor Dept
WASHINGTON (Reuters) – The number of mass layoffs by U.S. employers rose last month to tie a record set in March, according to government data released on Tuesday that suggested the labor market has yet to stabilize.
The Labor Department said the number of mass layoff actions — defined as job cuts involving at least 50 people from a single employer — increased to 2,933 in May from 2,712 in April, resulting in the loss of 312,880 jobs.
It was the largest loss of jobs connected to mass layoffs on records dating to 1995.
….Damn that forever increasing lagging indicator…somebody holler back there and tell it to catch up!….
June 23rd, 2009 at 1:32 pm
vennData-
I agree- the lower the better- affordability is key- home prices have to get in sync with wages
b22-
thought you might enjoy this tech ticker article-
headline-
“Inflation is Back”
excerpt-
“Looking forward, there’s plenty of reason to think demand will continue to get sapped from the system, as consumers continue to delever”
http://finance.yahoo.com/tech-ticker/article/268445/Deflation-It’s-Back?tickers=%5Edji,%5Egspc,%5EIXIC?sec=topStories&pos=8&asset=&ccode=
June 23rd, 2009 at 1:33 pm
As you may have noticed, I’m not much of a green shoots person.
What I see in the current year, as opposed to last year is we are slowly approaching an equilibrium. It’s too early to break out the champagne or chardonnay, but maybe by this time next year, we might be at that ‘equal to last year’ or ‘a little better than last year’ stage .
While not great, at least it’s not the apocalypse approaching.
June 23rd, 2009 at 1:59 pm
That particular bar chart format is the most readable and useful to be found anywhere – absolute numbers, monthly deviation, annual deviation and seasonality are all obvious.
June 23rd, 2009 at 1:59 pm
correction-
headline = “Deflation is Back”
didn’t use copy and paste- of course
June 23rd, 2009 at 2:00 pm
@EricTyson: It is indeed relevant if there fewer and fewer “move up buyers”.
June 23rd, 2009 at 2:22 pm
Mannwich – I’m hoping the whole idea of constant “moving up” in real estate is dead for awhile. Let’s not forget that all the boomers are retiring soon and many of them are going to want to downsize their property, especially if they’ve taken such a hit in their 401K’s that their retirement incomes are substantially reduced.
June 23rd, 2009 at 2:26 pm
VennData
I agree with you, but then I’m not an overleveraged home owner who’s stuck in a house I can’t afford. Or a bank (or the Fed) who’s got tons of crappy loans on the books that you’re hoping and praying don’t degrade any further and that you’re deluding yourself into thinking that the underlying asset will actually appreciate to levels of profitability. That of course is our macro dilemma and why the masses don’t want house prices to drop. It’s also why so many people would be happy to get some inflation. Debtors are being crushed and we have far too many debtors (we all our in terms of the national debt, of course).
Add in the fact that so many people don’t understand basic economics and finance and you get this sentiment predominating.
June 23rd, 2009 at 2:31 pm
And meanwhile retail from the Richmond Fed looks like it is following trend also…
http://www.bizjournals.com/triangle/stories/2009/06/22/daily22.html
“The state’s retail and service sectors continue to experience recessionary woes, according to the Federal Reserve Bank of Richmond’s June survey of business activity in the Carolinas, Virginia and Maryland.
The Richmond Fed questioned 133 companies throughout the region and received 103 responses. The survey includes anecdotal information and also offers up an index in which flat growth in any category – sales, employment, etc. – is denoted by zero. Negative numbers indicate retraction; positive numbers indicate growth.
According to the results:
• Service sector revenue scored a negative 29 on the index; retail revenue a negative 18.
• Service sector employee numbers got an index score of negative 20, average wages, negative 7. In retail, employee numbers indexed at negative 25, while averages wages got a plus 3.
The Fed says retailers reported a significant slump in the sale of big ticket items, a negative 51 on the index, and overall reduced traffic.”
June 23rd, 2009 at 2:34 pm
Thor
Yes, I agree that the idea of flipping houses to move up and cashing in on that magical asset appreciation should and will die. But you’re always going to have different pricing levels of houses and in a healthy, normal market you get first time buyers who buy a modest starter home, they build equity for a number of years which acts as savings, and then use that equity to buy a larger home as their earning power increases, etc. Nothing wrong with that.
But as CR points out, there will be very few move up buyers because so much equity has disappeared, or been withdrawn and spent on other consumer goods; i.e. home equity used to buy cars, boats, vacations, etc. And without other savings (which are scarce as we know), those folks won’t be moving up and therefore the upper levels of houses won’t have nearly enough natural buyers to support those who want/need to sell, and therefore prices will fall sharply.
June 23rd, 2009 at 2:45 pm
A little OT but some more anecdotal evidence of weakness here in the TC:
Our quite large neibhorhood nursery for the first time EVER is having a sale on EVERYTHING, 20-50% off. I was there yesterday evening to buy a couple of support racks for my tomato plants and it was dead. Maybe one or two cars there and the place was full of flowers and plants everywhere. Very large place too. Getting a bit late in the season for them to still have all of this inventory, I think, so I wasn’t surprised by the email notification that I received today regarding the sale. My sneaking suspicion is that people are finally setting and sticking to budgets. Now, long term this is a good thing, but it goes to show you how much our economy has been, and still is, dependent on the masses spending more than they can afford. This was not, and is not, sustainable.
@Thor: I agree with you about the “move-up buyer” issue, but it will hurt overall sales of existing homes and thus put a damper on the economy in many ways. The cumulative effect (e.g. move up buyers buy more/new furniture, lawn equipment, etc. etc. etc.) will be enormous.
June 23rd, 2009 at 2:46 pm
That’s “neighborhood”. Typ0-mania. My typewriting teacher from high school would not be proud.
June 23rd, 2009 at 2:49 pm
@Mannwich – there are fewer of various types of buyers…partly due to more restrictive lending standards and partly due to fear of layoffs and the widespread negativity in the media and among pundit class.
June 23rd, 2009 at 2:52 pm
Manny:
It’s always 5 o’clock somewhere….
June 23rd, 2009 at 2:53 pm
Thor and Mannwich – agree with you both. My feeling however, is that the entire nation is due for a “less is more” reset of our attitudes. You can already somewhat see this if you spend any time watching HGTV or DIY. Their home shows have moved away from a home flipping bias to one that’s more biased towards getting the most bang for your buck in home improvement.
I think this change in behavior is being forced on people because no one is going to have the equity TO move up for quite a while. A death of the “wealth affect” if you will. We tend to be an optimistic culture so it may be that the idea that living in a home that meets your needs, rather than your wants, will become the new norm. An age of forced frugality if you will. I heard a piece on NPR a couple of months ago that many home builders are already starting to build smaller houses to reflect the new reality of the real estate market.
June 23rd, 2009 at 3:04 pm
@Thor: Agreed, but I honestly don’t think that reality has truly hit home with most people yet just HOW MUCH people are going to have to scale back their lifestyles. This process will play out over several years, not months, which is why I scoff at anyone who thinks we’re out of the woods and on the way to a recovery, whatever that means.
June 23rd, 2009 at 3:09 pm
Shockingly poor performance from the S&P500 given how they’re laying waste to the $US today….Bernanke and buds must be getting a little frustrated…the ol’ artificial boost is no longer working like it once did. Only commodities catching a little bid…. Wonder if he can feel the rock and hard place….Trying to fight large asset deflation (homes/credit), but in so doing he’s causing small inflation bubbles…
June 23rd, 2009 at 3:14 pm
Mannwich – Nope, I don’t think it’s even BEGUN to hit people how much things are going to change. I see it with my friends and people I work with. Can’t remember who here was talking about going to a lake a couple weekeneds ago but they mentioned it as well. This is, however, Change we can believe in. :-/
June 23rd, 2009 at 3:17 pm
No argument there Thor. That’s a theme that’s been hit on here many times. And it is indeed forced upon most people, unfortunately. They’re being cut off by the lenders (finally). My sister in law is exhibit A.
June 23rd, 2009 at 3:21 pm
Thor
I’ve noticed the same trend on HGTV. I can’t stand it but for some reason my wife is kind of addicted to it, even though we’ve never indulged in all the chasing of stuff.
I even told her at the time that the house flipping shows were a sure sign of the top. And so it was. Fascinating how that works every time. I still wonder who’s got a ton of over priced beanie babies laying around!
June 23rd, 2009 at 3:25 pm
Onlooker – I’m addicted to DIY – another life lesson I learned from my grandpa “Never pay someone to do something you can do yourself” That’s translated into some pretty interesting (to use a polite word) home improvement projects over the years but I am getting better with time.
To answer your last question about beanie babies – that would be my sister in law
June 23rd, 2009 at 3:31 pm
Hey – The very same graphic at the top of this post is in the following article. Complete with the arrows.
http://business.theatlantic.com/2009/06/todays_home_sales_report_made_simple.php
June 23rd, 2009 at 3:32 pm
Ignore my last post – I didn’t read the article before I posted
June 23rd, 2009 at 3:34 pm
How big is that pool of first-time buyers? 3 years ago, everyone who wanted a home had already bought one. Hypothesis: Now, sellers are selling to the people who “missed out” before and see this as a buying opportunity.
So, again, how big is that pool of first-time buyers? Who will they sell to if/when they decide to sell, especially with the exhaustion rate the way it is?
I will be the absolute last in line to buy…
June 23rd, 2009 at 3:42 pm
@wunsacon: Remember, fools rush in. These dip-buyers are early. You’re patience will pay off in the end.
June 23rd, 2009 at 3:47 pm
That email wasn’t from a U of Cali .edu email address by any chance was it??
LOL
RE is probably in a bit better shape out here in flyover land than on the coasts….although it has most definitely cooled off. Residential construction has been DOA for a couple years now. I’m starting to see lots more signs of CRE distress. The only question is how much worse it will get before the bleeding is over.
I locked in my VA streamline refi at 5% a few weeks ago….still waiting to close….my banker had an entire filing cabinet filled with pending refi deals.
Got a flyer today offering full lawn mow/trim for $20. The heat index is near 110 today.
Why on earth would anyone buy RE today when the prices are still going down??
Falling knives hell….how about a falling building….
COT
Anyone else catch the History Channel special on National Infrastructure?? What a fucking mess.
I knew it was bad….but had no idea how bad….
THATS WHERE THE BLINKING TARP MONEY SHOULD HAVE GONE.
June 23rd, 2009 at 3:49 pm
“Why on earth would anyone buy RE today when the prices are still going down??
Falling knives hell….how about a falling building….”
@Christopher: Because human beings aren’t “rational actors” and buying a home is one of the more emotional purchases anyone can make. Most people simply can’t separate their emotions (visualizing their lives in a particular house) from the business aspect of it.
June 23rd, 2009 at 3:51 pm
Andy
Sure doesn’t look very encouraging for the bulls, eh? Lackluster performance today and it keeps bouncing off of about 896-7, right at the 50 EMA. Might be plenty of eager sellers there just under the 50/200 SMA point. Think some people want out who bought the 200 SMA breakout?
Interesting. Thoughts?
June 23rd, 2009 at 3:52 pm
@ Mannwich
http://www.myfoxtwincities.com/dpp/news/metro/minneapolis/Mpls_Taxpayer_Money_to_Promote_Tap_Water_june_22_2009
Someone has got some ’splaining to do….
June 23rd, 2009 at 3:53 pm
@Christopher: Yeah, not sure what that’s all about. I already drink the tap water here. I don’t need any promotions to get me to do it.
June 23rd, 2009 at 3:59 pm
Re: knife catching RE buyers.
And they’re being bombarded once again by the realtors with the same kind of rhetoric as before. They’re seeing these headlines about housing “stabilizing”, etc. and figure they better buy now before it takes off again. Ignorant of the bigger picture and the overall dynamics at play. And they’re falling prey to the mistake of comparing to bubble top prices and seeing the mark downs and figuring it can’t get much lower.
Also many are making the math mistake as follows. For instance, if it’s 50% down from the top and being told it may go to 60% down “worst case”, they figure they can withstand a 10% drop. But they don’t realize that it’s a 20% haircut for their new dollars. Same mistake in the stock market.
June 23rd, 2009 at 4:04 pm
Onlooker – remember that we’re dealing with real estate agents. I’m sure those of who’ve bought homes would agree that most of them are not much better than glorified used car salesmen (if that). Not the brightest group of professionals. I remember when I bought my house 4 years ago (sadly at the top of the market) the agent told me that prices would continue to go up in LA proper indefinitely because the land was “all filled in” and there was no available room to build new housing.
June 23rd, 2009 at 4:06 pm
mannwich @ 2:46
it’s called “keyboarding” nowadays my friend- I know because my kids had to take keyboarding in middle school- they probably don’t even know what a typewriter is- no big deal though-
my kids laugh when I say cellophane
June 23rd, 2009 at 4:06 pm
uh oh… looks like congress is watching CNBC. We are all doomed.
http://www.cnbc.com/id/31509964
Read the last paragraph
June 23rd, 2009 at 4:09 pm
Thor
They’re just parroting the talking points they get from the NAR. Some realize that they’re full of crap and others don’t have a clue, which undoubtedly helps as they can spew the B.S. without thinking they’re lying. Same old crap.
June 23rd, 2009 at 4:15 pm
@Ahab,
Thanks for the link.
June 23rd, 2009 at 4:15 pm
GB
Yeah, no kidding. If that’s where they’re getting their “authoritative” data and info from, we’re screwed.
The whole appraisal business is a tough one to keep honest and it can be very difficult to assess proper pricing, especially on unique properties. I don’t doubt though that it’s screwed up now though as the big banks are driving so much of the show with all their REOs. What a friggen mess. (he says again
)
June 23rd, 2009 at 4:30 pm
Andy T said: “Shockingly poor performance from the S&P500 given how they’re laying waste to the $US today….”
Our words at Schadenfreude were similar: Piss weak rally off a 2c rise in the Euro. It’s getting late for Goldilocks. Oil and energy stocks especially are in the process of a big roll over, and the REITs are going to hell – finally.
June 23rd, 2009 at 4:46 pm
I also liked this statement from Andy: Trying to fight large asset deflation (homes/credit), but in so doing he’s causing small inflation bubbles…
$spx closed under 50 day ema for second day in a row. i need at least one more day (and a fourth to confirm) before I turn bearish, again. $spx also tapped the low BB today… would love to see it close back above 897.
http://stockcharts.com/h-sc/ui?s=$SPX&id=p36249577370&def=N&listNum=1
June 23rd, 2009 at 4:51 pm
Lovely head and shoulders. The chart I mean, obviously. 950 head, 925 shoulders.
Thanks, Karen. Looks like a short-term oversold bounce to around 915-917 is coming next?
June 23rd, 2009 at 5:04 pm
@Thor I agree that Americans are going to have to return to a simpler way of living life. And it’s probably about time we did. I grew up in a middle-class suburban neighborhood where girls in high school own designer everything so that they can dress like celebrities in Hollywood.
As for homes prices, I this it’s interesting Barry is pointing out the trend in seasonality, as many people getting ready to buy or sell homes may not be aware of it. While it may not be the best economic indicator, it’s still important information to put out there.
And as for real estate agents, I wouldn’t equate them with used car salesmen, but they aren’t fortune tellers either. They can’t predict the housing market any better than a stock broker can predict the financial markets.
June 23rd, 2009 at 5:20 pm
Howdy folks-
The main thing on my mind is that the US National Team has a great R/R at kicking the snot out of Spain tomorrow. What can I say? I love being an underdog. Finals baby, finals.
Second-
After adding to FAZ, SRS, QID, and SDS today…
I might be looking to close those positions if we get a cliff dive down to 880 on SPX tomorrow and bounce.
Note that in the spirit of good R/R, a close of the Ultrashort positions at support levels isnt necessarily a statement on the trend breakdown, but moreso an effort to reduce risk. I would like to see a bounce at these levels tomorrow, another lower high take shape, and then re-enter shorts again for the next wave down, should it occur. There is always the risk that the old Admin will come out and say something ridiculous to send the markets up well, ridiculously. Just below support would be a great place for them to do something like that.
The H&S top that looks to be in play on SPX is what got me thinking on this strategy. Since I have been short from the top, might as well cover at 880, expect a bounce up to 915-920ish, and then give em hell. That way, at least I know my boundary on the upside. 956 feels like a long way from here to ride a short position.
Here’s my tentative support levels for the Ultrashorts I have in play…
QID- Close position @ Q’s 34.
SDS- Close position @ SPX 880
SRS- Close position @ IYR 30
FAZ- Close position @ XLF 10.75
Re-enter short positions at the exhaustion of the bounce off of those support levels.
Of course, if we blow through those levels and dont look back, this strategy is likely out the window… but given the resiliency of this rally to date- I highly doubt that there wont be a bounce off those levels. Too many dip buyers still in the house.
June 23rd, 2009 at 6:17 pm
Is there any reason why the next asset bubble could not be gold?
June 23rd, 2009 at 8:03 pm
I-man,
Thanks for the post. it almost seems to easy to call and end to this current downtrend at 880. Everyone is watching that number. I thought Art Cashin (spelling?) made a smart comment today saying that the market will probably fool everyone and go down more than that before the final push up. In any event, you might be able to squeeze out some more money from SDS. Then again, I’m the one that said just yesterday it’s best to take your profits and get out of dodge on the ultra’s.
Good luck to you.
June 23rd, 2009 at 8:04 pm
Simon,
That is an interesting thought. Fwiw I’m real bearish on gold. Maybe not as bearish as AT but 680 looks like the next major stop for gold.
June 23rd, 2009 at 8:17 pm
680? but but but . . . . .
June 23rd, 2009 at 9:20 pm
Again, what happened to the humble Moving Annual Total (MAT)? Question2, what happened to any basic understanding of numbers and mental mathematics.
On the same subject, I saw Kudlow tear apart poor little Diaana Olick (One of the better CNBC hacks IMHO) for daring to point Sir Lawrence in the direction of understanding seasonality. The ensuing tirade was embarassing to say the least. You would think that, as an economist (Reportedly) would understand seasonality? Of course, he probably does but it doesn’t suit his Agenda?
Does anyone still take this clown seriously?
June 23rd, 2009 at 10:21 pm
Simon says “gold”. Everyone into the pool!
June 23rd, 2009 at 11:41 pm
Simon Says:
June 23rd, 2009 at 6:17 pm
Is there any reason why the next asset bubble could not be gold?
The only reason I can think of is that everyone already owns gold and there are too many gold commercials on TV and Radio. Other than that…..have at it!
June 24th, 2009 at 10:07 am
[...] Those Were the DaysI do not cover the housing sales and price numbers much anymore because we all already know how they are going to go. I still get a kick that after 2 years of terrible number, the pundits still try to get excited about rising sales going into the spring and summer. Barry Ritholtz highlights the silliness of this idea here. [...]
June 25th, 2009 at 12:07 am
[...] Those Were the DaysI do not cover the housing sales and price numbers much anymore because we all already know how they are going to go. I still get a kick that after 2 years of terrible number, the pundits still try to get excited about rising sales going into the spring and summer. Barry Ritholtz highlights the silliness of this idea here. [...]