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
I’m kinda dumfounded to see this issue come up time and again, but — there they go again: The National Retail Federation is once again putting out data which has gotten misinterpreted by most of the MSM: “Retailers kicked off the holiday selling season in style as shoppers across the country set their alarms for…Read More
Fascinating interview With Richard Arvedlund, Founder, Cypress Capital Management, who is not particularly optimistic on the economy going forward:
WE CAN ALWAYS COUNT ON RICHARD ARVEDLUND to take a different tack. Independent and bold calls on the economy come easy to this longtime money manager, who’s seen it all in his 30-plus-year career. But his balanced investment approach, with a focus on high-yielding, big-cap stocks combined with some bets on bonds, helps his clients preserve their capital as much as build it. The founder of Wilmington, Del.-based Cypress Capital Management, which has $450 million in assets and is now a unit of WSFS Financial, is at his best in troubled times. Trouble, the way he sees it, is straight ahead.
Barron’s: It took a year, but the calls you made when we last spoke are looking pretty good now.
Arvedlund: Well, until midyear the economy was running much stronger than I had thought it would. However, a GDP [growth domestic product] slowdown has clearly begun. The GDP growth rate dropped to 1.6% in the third quarter from 2.6% in the prior quarter and 5.6% in the first quarter. We have not seen GDP growth below 2% for four or five years. We now have preconditions in place for a recession.
The preconditions would be the following: Whenever housing starts and permits drop by the rates of decline that have been exhibited — 10% to 20% — it has always preceded a recession. What is remarkably different in housing than just about any other sector of the economy is that whenever housing cycles turn down, and that’s happened twice in the last 30 years, once in the late ‘Seventies and once in the late ‘Eighties, the downturn tends to last much longer than people dream. The average cycle is three to four years.
Recession: The Stage Is Set
Interview With Richard Arvedlund, Founder, Cypress Capital Management
Barron’s, Monday, November 13, 2006