Wednesday, August 26, 2009

The Truth About the New Home Sales Data

The media is all orgasmic about the new homes sales data released today by the Commerce Department. The reporters on CNBC and CNN and Fox should just pick up their pom poms and start practicing their best "New Bull Market" cheerleader routines.

The TRUTH about the new home sales data is not so good.

First, new homes sales represent only 7% of all home sales. In other words, NINETY-THREE PERCENT of all home sales are EXISTING or PREOWNED homes, not brand new ones.

Second, prices of these new homes were down 11% from a year ago. As I have said a million times, who cares if you sell more of something when the price goes down by double digits? That's easy. The goal is to sell MORE with prices UP and RISING. I can sell lots of BMWs at $500 each and I'm not a car salesman.

Third, the margin for error on all new homes sales data is plus or minus 10.3%. So let's do some math. If the government says new home sales rose 9.6% in July but the margin of error is 10.3%, what is the real number of new home sales? By the way, the Commerce Department revises new home sales on a retroactive three to six month basis so we will actually know the real number on new home sales in July sometime around Thanksgiving.

Fourth, new home sales in July 2009 were DOWN 13.4% over July 2008 which was itself a dismal month. This doesn't sound like much of a housing market recovery to me.

Fifth, all full SEVENTY-SEVEN PERCENT of the July 2009 new home sales were deposits put down on unconstructed homes, not purchases of spec or existing new homes. What does this mean? Buyers are hedging their bets, unwilling to buy new homes at current prices. What they are willing to do is potentially buy new homes at future prices. In other words, nearly eighty percent of new home buyers are speculating on the future value of their homes. None of this, of course, does anything to reduce the current inventory of existing new homes which is still at near historic highs. I suspect many of the new homes sales buyers in July will walk away from deposits (or hire lawyers to get them back) if home prices continue to fall---or if they are not eligible for the Obama $8,000 homebuyer tax credit.

I could go on but what's the point. Here is a link to the official Commerce Department report. Read the actual numbers like I do. The mainstream financial press is not about accuracy or truth anymore. It's about making investors feel good about their investment decisions, more like psychological counselors than journalists.

The new homes numbers today aren't very good and the numbers speak for themselves.

Robert J. Abalos, Esq.
www.investinginland.com