Rumors of Housing's Rise From the Dead Are Greatly Exaggerated

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

Housing starts for November were released today, December 20th, and the stock market rallied strongly on the supposedly "good" news. The statistical error rate in the housing report is so huge, that the numbers are meaningless -- and easily subject to manipulation by a government that is desperate to provide news of a recovering economy.

Housing starts peaked at 2,273,000 in January 2006. According to the Commerce Department, construction of new U.S. residences in November 2011 was 635,000. Almost five years later, housing activity is still less than 28% of what it was at the peak. Despite this almost three-quarters decline in housing activity, this is being spun as evidence of an economic recovery by the mainstream media. Would you consider it progress if your salary was only 28% of what is was five years ago?

As dismal as this statistic is, it is very possible the actual number is much worse. The housing starts report has the highest statistical margin of error of any government report. The error is so huge that is a waste of taxpayer money to produce this report. The error in the overall number can be greater than ten percent. The error on individual components can be as much as 33%. This is important because better housing start numbers in 2011 (November was not the first month when better numbers were reported, this took place earlier in the year as well), have been created by a supposed surge in apartment house construction. Apartment construction rose by 25.3% in November and this is what is making the overall number higher. Considering the huge statistical error rate, it is possible that it didn't rise at all.

Optimists who think it did rise by that much need to ponder the implications of why a lot of apartments are being built and very few single-family houses. The inescapable conclusion is that few Americans can afford to buy their own home anymore. I would hardly describe that as an indication of better economic conditions. Even more telling is that the number of completed housing units dropped by 5.6% in November even though housing starts rose earlier this year. If this is correct, a lot of housing that is begun is not being finished. While that makes no sense, nothing else about the report does either.  

Disclosure: None

Daryl Montgomery
Author: "Inflation Investing - A Guide for the 2010s"
Organizer, New York Investing meetup
 http://investing.meetup.com/21

This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security.

New Home Sales: Still at Depression Levels

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


The June New Homes Sales figures were released today and the Commerce Department claimed they were up almost 24%. Stocks rallied strongly on the supposedly good news. A revision of May's all-time low number to a much worse all-time low number is what gave the appearance of a strong rebound.

New home sales for May were originally reported at a 300,000 annual rate last month. This compares to a high of around 1.4 million in 2005. It was also the lowest number ever recorded in the history of the data. As bad as 300,000 was, and it was truly awful, there was a significant downward revision for May sales in the current report to only 267,000.

May sales were also not the only month with a downward revision. The figures for April were originally reported as 504,000 in the report released in May. Then in the report released in June, they were revised lower to 446,000. Then in today's July report they were revised downward again to 422,000. Do we see a trend here?

The home buyer tax credit was good until the end of April. With the revised numbers, new home sales actually fell 37% in May, not the merely disastrous 33% originally reported. The drop from the originally reported April number was 47% however. If you wish to claim there was a 24% rebound for the numbers in June, as the government did, you need to put it in the context of a 47% drop first taking place, otherwise you are comparing apples to oranges. No matter how you look at it though, new home sales were and still are at depression levels.

New home sales figures have been continually revised downward for several months now. It is highly likely that the 330,000 number just reported for June will be revised lower next month and quite possibly lower again the month after that. The Commerce Department reports the best number possible the month of the release. The mainstream media then gives that news big attention and uses it to reinforce an image that government programs are being effective. When the downward revisions take place in future months and indicate things aren't quite so rosy, that news gets buried in the article - if it is mentioned at all. This is not the only U.S. government data where this pattern exists, nor does this only take place in this country. Investors shouldn't let themselves be tricked by this game.

Disclosure: No positions.

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.