Last month, when new home sales fell 33%, I warned investors that “This data series is notoriously noisy, and you are must better off using a 3 month moving average than reading too much into any single month.”
This month, we see that New Home sales jumped 24%. The same caveat applies: Ignore the swings, look at the moving average to smooth out the volatility.
In fact, the series is so noisy that way back in 2005, we had to to a study to figure out what to make of it. Our conclusion?
“Looking back over the past 15 years of data, we see that a mean regression has followed nearly all double digit monthly gains. The subsequent month’s data was significantly lowered — flat to negative in nearly every case.”
I have yet to do study on the negative double digit months, but I have a suspicion it would be the same. Bottom line: Anytime you see a big gain or drop in this data series, you should expect a reversal the following month.
click for larger chart
Courtesy of Calculated Risk
New Home Sales Data: Don’t rely On It Either (November 30th, 2005)
New Home Sales Plunge 33% (June 23rd, 2010)
NEW RESIDENTIAL SALES IN June 2010
U.S. Department of Commerce, Manufacturing and Construction Division APRIL 23, 2010 AT 10:00 A.M. EDT
Erica Filipek or Stephen Cooper
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.