"David F. Seiders, chief economist of the National Association of
Home Builders, said the unexpected weakness in recent months had caused
him to shave his forecast for housing construction this year. It now
shows a fall of 23 percent after a 14 percent drop in 2006." (emphasis added)
I spit my coffee out all over my keyboard when I read that WTF?!? line this morning. Unexpected weakness? Seriously, some of these housing shills are starting to make Baghdad Bob look like a respectable spokesman.
What did he actual data show?
Well, for starters, we see sales of existing homes fell 3.8% — the fourth consecutive monthly drop — to a seasonally adjusted annual rate of 5.75 million units. For comparison purposes, this brings us back to the levels last seen in November 2002 — prior to the ultra-low interest rate driven boom really ramped up.
On a year-over-year basis, June sales were off 11.4%.
Resales of single-family homes fell 3.5 percent to an annual rate of 5.01 million. Sales of condos and co-ops fell 6.3 percent to a 740,000 rate. Total Inventory dropped by 4.2%, a positive development.
The media frequently mentions median price in these reports, but rarely explains what it means. I should give kudos to AP for at least making a partial attempt at clarifying the data. They noted "The median [price] is the point where half the
homes sold for more and half for less." Ideally, one would explain that this can be skewed by either a drop in low end home sales or an increase in high end sales during the present weakness (and vice versa during the recent boom).
And while I am handing out platitudes, Bloomberg gave good color on how both the New Home Sales and Existing Home Sales data are assembled:
"Monthly figures on home resales are compiled from contract closings and may reflect sales agreed upon weeks or months earlier, while new-home sales are recorded when a contract is signed. Sales of existing homes account for about 85 percent of the U.S. housing market, and new-home sales make up the rest."
Perhaps this means all those rants were not for naught . . .
UPDATE: July 26, 2007 10:05am
Miller Tabak’s Peter Bookvar notes that "June New Home Sales totaled a weaker than expected 834k, 56k less than expected and May was revised down by 22k. It’s just shy of its lowest level since mid 2000. Months supply rose to 7.8 months from 7.4 in May. The recent high was 8.3 in March. The median price fell 1.2% sequentially. This # measures contract signings of new homes and a weaker than expected # is certainly not surprising considering what we’ve heard from many homebuilders over the past few weeks.
Keep in mind that this data series is particularly unreliable, and subject to subsequent revision; to get a truer read, try using a 3/6 or 3/12 month moving averages."
June Sales of Existing Homes Fell 3.8%
ASSOCIATED PRESS, July 26, 2007
Home Resales in U.S. Fall 3.8% to 5.75 Million Rate
Bloomberg, July 25 2007
I am back home, rested and refreshed after a wonderful few days on the lakes of Maine (and a grueling weather impaired return trip).
I wanted to give y’all a recap of the "Kansas City Shadow Fed Meeting" up in Grand Stream Lake, Maine. This is an invitation only gathering that David Kotok of Cumberland Advisors has been running for the past few years. We all stayed at Leen’s Lodge on Grand Lake Stream, ME. Economists, strategists, fund managers, Fed employees, traders, journalists all mingle on the water and in the lodge. The participant who traveled the furthest came from Chile. A certain Scotsman regaled us with tales in that charming brogue, frequently punctuated with exclamations of "Crrrappp!" and "Foook!"
The entire event was under "Chatham House Rule" — meaning, I can not quote anyone by name or tell you which economist got drunk and danced until midnight (but one did).
But I can say that this is a very fine group of folk. The weekend was filled with good conversation, lots of wine, fine cigars, too much scotch, and outstanding fishing. we fished all three days — it rained on Friday, cleared on Saturday, was gorgeous on Sunday. I caught more freshwater fish than I ever have (and I spent the summers of my youth fishing in upstate New York). My canoe mate was hedge fund manager Scott Frew. Most days we pulled in 30-40+ fish — everything from Bass to Pickerel to the especially delicious White Perch. We released most of the Bass, and ate most of the Perch. On my last cast of the weekend, I pulled in the biggest freshwater fish I have ever caught — a fat 19" Bass that must have weighed 4 – 5 pound. Simply outstanding.
The weekend’s second biggest highlight — the first being that 19-incher — was the Saturday evening betting. Wagers are made by the group on S&P, 10 year, Fed Funds, Oil, Gold, Dollar/Euro, and CPI exactly one year hence. I made all bets, except CPI, choosing to boycott any BLS data. It was lots of fun.
David and I started an interesting side bet on the price of oil — over/under $66 — which attracted a lot of attention, and quite a few participants.
Here’s a bit of quirkiness: My outlook on the US economy was probably the most bearish of the entire group; at the same time, I probably had the most fully invested investment posture in terms of our managed accounts versus the rest of the fund managers. Kinda weird . . .
A few other interesting items worth relating:
Economics: The general consensus seems to be that the economy is middling, with some expecting it to slow further, and a few of the economists expecting a 2H re-acceleration. No one really thinks housing has bottomed, and I got the sense that I was the most moderate person in terms of how much further real estate prices will fall.
Politics: An interesting split between the two most esteemed political observers in the group: Both expected Mitt Romney to be the GOP nominee, while Obama/Clinton as the Dem nominee.
Markets: There was general caution amongst the group, with the expectation that a 5% correction is very probable. The range of other bets covered whether the markets run much further or get hit much harder in the future.
The Fed: Likely to be on hold for the foreseeable future. The inside line is that Bernanke is a much bigger inflation hawk than Greenspan ever was.
BLS: Clear consensus is there is no vast conspiracy manipulating there data. They have models, all models are biased, therefore their model is biased. I was surprised to hear a very experienced, highly placed participant mention in passing that he thought the Fed paid little attention to BLS data. Rather interesting.
If you have never spent an afternoon gently rocking in a small canoe on an northern glacial-formed lake, surrounded by pristine forests, with Loons crying in the distance as Bald Eagles wheel in the skies overhead, I highly recommend it.
Bottom line is that I expect to be back in Maine next summer . . .