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The Reality Behind The New Home Sales Number

Tyler Durden's picture





 

Yesterday's "better than expected" New Home sales served as the "good news" pre-market boost to send futures ramping higher once again, if not enough to cause a fresh all time high.

Here is what really happened when one spreads the numbers, courtesy of Mark Hanson's housing blog.

This New Home Sales data are virtually worthless due to what I call "the laws of small numbers".
 
That is, unlike Existing Sales that averages about 400k a month, New Home Sales averages under 35k, with the off-season winter months when the seasonal adjustments are the greatest in the high 20k's.  In fact, as a percentage of total US house sales they have never been lower at about 7%.
 
This presents a problem when the Census Bureau counts 'sales', as  it rounds up to the nearest thousand.
 
Bottom line, in the CB data below, last month it says a rounded-up 34k houses sold. Last Jan they say 32k sold.  With an 8% RSA, this is flat YoY at best.   Also note, the volatile South was responsible for all the 2k gain plus another 2k. 

Rounding up...  See data below.  If all of the 4 regions were in this morning's New Home Sales print were rounded down to the nearest thousand by the Census Bureau vs up, it would subtract 4k sales, or about 12%.  Even with the massive January seasonal adjustments, this would result in a SAAR headline print of 428k, or flat YoY vs the up 10% reported.   If only the South was flat YoY like the other regions, the same thing would occur. 
 
This is a shame, because New Home Sales have always been a great way to track "end-user" demand, as this segment isn't driven by investors like the Existing resale market.  This leaves the only real way to gauge the true, fundamental health of the "end-user" housing market NAR's existing sales and the first-time buyer cohort.    
 
1)  Census Bureau New Home Sales NSA beat last year by 2k houses with ALL FOUR regions rounded up to the nearest thousand.

In other words, with an 8% RSA, there is no change YoY.  Moreover, if the volatile Southern region was flat or lower YoY like the other regions, the headline 10% YoY gain would have been flat YoY. 
 
2)  I am exiting my long builder trade reco before Existing Home Sales was released last week into this squeeze...that 10% was too easy, I am a chicken, and housing far too volatile in here to fall in love.  

 


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Thu, 02/27/2014 - 12:46 | Link to Comment knukles
knukles's picture

A home here and a home there and pretty soon ya got a real housing boom number!

Thu, 02/27/2014 - 12:54 | Link to Comment pods
pods's picture

Why do people even assume that they are reporting actual metrics anymore?

pods

 

Thu, 02/27/2014 - 12:59 | Link to Comment Panem et Circus
Panem et Circus's picture

Agreed. Why should this particular index be any different from ALL of the indexes that we know are already manipulated?

Thu, 02/27/2014 - 13:34 | Link to Comment redpill
redpill's picture

It's not an index, it's a survey.  A very thin survey.  There are better data sources available.

Thu, 02/27/2014 - 14:45 | Link to Comment Vampyroteuthis ...
Vampyroteuthis infernalis's picture

There are lies, damn lies and there are statistics. -Mark Twain

Thu, 02/27/2014 - 12:45 | Link to Comment Payable on Death
Payable on Death's picture

More than half of all Fannie and Freddie loans now have less than 5% down payments.

Thu, 02/27/2014 - 12:47 | Link to Comment knukles
knukles's picture

This time it's different.

they ain't the same loans... the other ones already went bad...

Thu, 02/27/2014 - 12:47 | Link to Comment Payable on Death
Payable on Death's picture

Yes, the new ones are set to go bad, too.

Thu, 02/27/2014 - 12:51 | Link to Comment knukles
knukles's picture

Not to worry.  Obie'll give a speech on it.

Which'll be sure not to be inflamitory in any way shape or form....

http://newyork.cbslocal.com/2014/02/26/spike-lees-comments-on-nyc-gentri...

Thu, 02/27/2014 - 12:50 | Link to Comment jbvtme
jbvtme's picture

why aren't we wharehousing these cattle in apartments insted of single family houses. if they can't pony the 20%, fuck 'em

Thu, 02/27/2014 - 13:03 | Link to Comment Panem et Circus
Panem et Circus's picture

I had an offer to buy a house from me a few months back. $325k offer, $1k down payment, contingent on obtaining 97% financing (from FHA plus all the extras), and asking for $15k "sellers help" basically paying his closing costs. Rejected it out of hand, but wonder how many "buyers" like that are actually out there.

Thu, 02/27/2014 - 13:09 | Link to Comment maskone909
maskone909's picture

15K in closing costs!?  i would love to broker that deal

Thu, 02/27/2014 - 15:10 | Link to Comment Handful of Dust
Handful of Dust's picture

How many Buyers like that out there? Well, lets just say the "Build-Your-Own-Home-No-Money-Down" ads are popping up all over the place again. 

Almost as numerous are the ads for "No Money Down" houses.

Forward!

Thu, 02/27/2014 - 19:48 | Link to Comment TruthInSunshine
TruthInSunshine's picture

86% of new homes sales utilize the 3.5% down payment "new normal" standard that FHA- backed mortgages (aka tax payers on the hook if mortgage sours, even though a bank is profiting off the underwriting/closing) allow.

IOW, you only need 3.5% of purchase price to close on a new house 86% of the time (hey, this is more than three years ago, when buyers and sellers colluded to allow for the 1st time homebuyer tax credit to be applied as the 3.5% down). p.s. 32,000 new homes sold (it wasn't, but let's do the math anyways) equals an average of roughly 640 new homes PER STATE.

But obviously, California has 38,000,000 people, while Wyoming has 600,000, so it has to be adjusted for population, as well.

IOW, all things being equal, out of those alleged 32,000 new home sales nationwide for the month, there should have been 64 times as many new homes sold in California as Wyoming, for the month.

Thu, 02/27/2014 - 22:23 | Link to Comment Zadig
Zadig's picture

Most of the bids I've received in the last year or two required a "seller's assist" higher than their downpayment.  All were at least "pre-qualified".  None of them were able to close. 

Thu, 02/27/2014 - 13:14 | Link to Comment Bobportlandor
Bobportlandor's picture

The 5% down is considered by banks as Security Deposit and First Month’s Rent, they know full well theses people can't afford theses prices.

 

 

Thu, 02/27/2014 - 12:47 | Link to Comment NOZZLE
NOZZLE's picture

We are and remain at sales levels equal to the early 1990'$, with a much higher adult population.  Pathetic. 

Thu, 02/27/2014 - 13:06 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Dood, you looked at too short term a chart.

We're at sales levels of the 1960s, not just 1990s.

 

Per here:  http://research.stlouisfed.org/fredgraph.png?g=7iv

Thu, 02/27/2014 - 12:47 | Link to Comment gosh
gosh's picture

No one cares.  The market will keep going higher as long as the fed does QE, and as long as international revolutions cause overseas investors in invest in US stocks and bonds.

Thu, 02/27/2014 - 13:07 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

No.

As long as there are HFT engines algorithmed to watch share buybacks.

Thu, 02/27/2014 - 12:47 | Link to Comment glossolalia
glossolalia's picture

I didn't read the article because the headline didn't have "plunge", "crash" or "worst" in it.

Thu, 02/27/2014 - 14:11 | Link to Comment knukles
knukles's picture

So if Tyler puts "Half tittied women" in the title then it's a read?

Thu, 02/27/2014 - 14:47 | Link to Comment Vampyroteuthis ...
Vampyroteuthis infernalis's picture

"Half tittied women"

No shemales for me buddy!

Thu, 02/27/2014 - 13:07 | Link to Comment Pareto
Pareto's picture

Here is a Zero Hedge type article as dilineated by the title: "The Chart the Debt Alarmists Don't Want You to See" - BUT - with an anti Zero Hedge explanation -if thats possible.

http://www.slate.com/blogs/moneybox/2014/02/27/debt_alarmist_chart.html

 

I feel better already.

Thu, 02/27/2014 - 14:00 | Link to Comment Cursive
Cursive's picture

@Pareto

he shows that on a net basis the United States of America does not have any public debt and perhaps never did. 

 

WTF?  No public debt?  Yeah, OK, tell that to the UST.  I guess the interest payments are just a hoax, too?

Thu, 02/27/2014 - 14:07 | Link to Comment Pareto
Pareto's picture

+1 oh i know.  all smoke and mirrors and bullshit.

Thu, 02/27/2014 - 14:19 | Link to Comment NOZZLE
NOZZLE's picture

Pubic ASSets, who created that measure,  KumGlugMan?

Thu, 02/27/2014 - 13:15 | Link to Comment NOTaREALmerican
NOTaREALmerican's picture

Well,  we really need to separate out the two economies in the US to understand real-estate.  

The real-estate of the top 20% is selling well.   Real-estate of the loser-trash class isn't selling so well.

Why do we continue to blend these two completely separate economic entites together?   Who cares about the bottom 80%; they're just the losers in a survival-of-the-fittest society.   Who needs their crappy real-estate?   I mean, come-on:   do they even have high-end appliances?

It should be simply enough to start identifying top 20% zip codes and loser-trash-class zip codes and have economic statics for both.  The top 20% owns the corporations, runs the corporations and the government,  does all the voting,  purchases the political sociopaths...   It has nothing in common with the trash-class losers.   Why blend the two together?

 

Thu, 02/27/2014 - 19:51 | Link to Comment TruthInSunshine
TruthInSunshine's picture

As the middle class is further & further compressed, it's more like 91% "are in the "scum class," 6% are in the "middle class," 2% are in the "upper-middle class," .9% are in the "upper class," and .01% are "wealthy."

Thu, 02/27/2014 - 13:43 | Link to Comment adr
adr's picture

I thought over 400k homes annualized were sold last month. That is what the media said.

Thu, 02/27/2014 - 16:15 | Link to Comment TruthInSunshine
TruthInSunshine's picture

That's existing and monthly.

There's been about a 12 to 1 ratio of existing to new sales for the last 5 "new normal" years.

Thu, 02/27/2014 - 13:48 | Link to Comment Tsar Pointless
Tsar Pointless's picture

If dirt were dollars, we'd all be in the black. (Song lyrics from Don Henley's "If Dirt Were Dollars" from his The End of the Innocence LP.)

Thu, 02/27/2014 - 13:48 | Link to Comment Spungo
Spungo's picture

"why aren't we wharehousing these cattle in apartments insted of single family houses. if they can't pony the 20%, fuck 'em"

We can't do that because it would make housing prices crash. 20% of a 400k property is 80k down payment. Most people are not sitting on 80k in cash, so housing would need to drop significantly before the market reaches equilibrium. I think 20k down seems reasonable, so work that backward and we get a house price of 100k. This would completely fuck up Bernanke's plan of pricing young adults out of the market. Housing would actually be affordable for the people who can save 20% down. This would also bring the cost of rent way down. Cheaper real estate means investment properties can have positive cash flow at a much lower rental price. Young Americans would benefit from lower cost of rent, and it would be easier to save up that 20% when rent is a few hundred dollars per month cheaper. The money not spent on rent or high mortgage payments would then be spent at retail stores or put into capital investment. The American economy would recover. We can't have that. We need to keep rampant inflation going at all cost.

Thu, 02/27/2014 - 13:52 | Link to Comment Seasmoke
Seasmoke's picture

Good to see Mr. Market getting some ZH space lately. Where you've been Mark ???

Thu, 02/27/2014 - 14:36 | Link to Comment Kasperfx
Kasperfx's picture

 theirs also a new trend for bilders here in south fla to sell builk homes and condo's  to straw buyers ( a legal entity setup buy the builders himself")to show good sales numbers for their stocksuckers and publicsuckers n inturn offer it as rent of put it on the market at a discounted price. 

Thu, 02/27/2014 - 14:57 | Link to Comment disabledvet
disabledvet's picture

there aren't a lot of dollars sloshing around right now and there obviously is a lot of "fear of fear" that local dollars are being made worthless globally.

to say this has put a bid in dollar denominated assets of every stripe is indeed an understatement. The easiest and most accessible is a plain old suburban house, detached garage, full basement and a swimming pool.

there are no issues in the USA relative to food or water security...let alone scarcity. "the dumb" (out of?) "money is short."
Russia throwing its Navy around scaring everybody is playing right into a psy ops dream come true.

Thu, 02/27/2014 - 15:06 | Link to Comment IREN Colorado
IREN Colorado's picture

They forgot to factor in the fact that most new home sales are apartments who's occupants aren't happy new owners but Section 8 welfare hope and changers.

Go long public housing..............

Thu, 02/27/2014 - 19:12 | Link to Comment bullsfx.com
bullsfx.com's picture

why would you buy a ready house while you can build one for cheaper?

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