Ignore The Monthly New Home Sales Reports

Per the Commerce Department:

Sales of new single-family houses in September 2014 were at a seasonally adjusted annual rate of 467,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.2 percent (±15.7%)* above the revised August rate of 466,000 and is 17.0 percent (±20.6%)* above the September 2013 estimate of 399,000.

So the September numbers were kind of blah, but the good news is that despite downward revisions August was a very good month as sales were up 15.3% from July which was also revised down. Still with me? If so let me make a suggestion, ignore these numbers, they’re bad guesstimates. Here’s the WSJ Real Time Economics blog on the subject”:

The Commerce Department’s monthly estimates tend to be volatile, often are revised significantly and typically come with enormous margins of error. Sales rose 0.2% in Septemberfrom the prior month, the latest report said. But that figure came with a margin of error of 15.7 percentage points.

So it could be up 15.9%, or down 15.5% — your guess is as good as ours.

August was a good month for new-home sales. They rose a robust 15.3% from July. But the initial estimate of sales (reported a month ago) at a seasonally adjusted annual rate of 504,000 was revised down this month to 466,000.

The month still saw a solid gain, because July and June numbers were revised down. But the 15.3% gain came with a margin of error of 16.3 percentage points. So sales could have been up a tremendous 31.6% — or down 1%. Take your pick.

No need to belabour the point, so let’s take a look at the bigger picture which isn’t pretty. To find a year in which new home sales were lower than the current run rate, excluding the 2008 recession years, you have to go back to 1982! Oh, and as the WSJ points out in 1982 interest rates were at 15%, unemployment was over 10% and the US population was 232 million versus 315 million now. Take a look at this graph from the St. Louis Fed for a better feel as to just how woeful the business of building new homes has become.

I know that everyone has his pet theory about what’s wrong – demographic shifts, income inequality, student loans, tight credit and on and on. All valid and logical arguments, yet the 80’s, and for that matter other periods after recessions, also involved headwinds which didn’t deter strong rebounds. This time it’s different and the reason(s) aren’t that obvious. Based on the duration of past upticks in construction, it looks as if time is running quite short to get back to historical norms.

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