The headlines on reports of the new home sales data highlight the fact that sales unexpectedly increased by 4.1%, the largest rise in 5 months.
Now before you get excited that the housing market may be stabilizing let me point out some things that I found from looking directly at the data:
- Sales in May, June and July were revised sharply lower.
- The median sales price of a new home fell 1.3% year-on-year, the first year-on-year decline since 2003.
- The housing data is subject to large statistical errors. The standard error is so high, in fact, that the government cannot be sure sales increased at all in August. The 4.1% increase is statistically meaningless.
- It can take up to six months for a trend in sales to emerge. New home sales have averaged 1.082 million per month over the past six months, up slightly from 1.080 million in the six month period ending in July — basically flat.
If new home sales really did increase, I attribute it to builders who are cutting prices and offering massive incentives in order to reduce inventory.
The market and media seem to be focusing on the headline number and pushing stocks higher. But the facts above suggest that the new home sales data does nothing to prove that housing has recovered. To reach such a conclusion we would need look at more data.
