Sunday, August 1, 2010

Does the Media Understand Economic Statistics - Housing?

On Monday, July 26, the media made much of  June New Home Sales going up 23.6% with inventory decreasing from 9.6 months to 7.6 months and it seemingly effected the stock market which went up 100.81 points on the Dow.  Unfortunately, the June sales looked so good, because the May sales were substantially revised down.

June existing home sales and June housing starts were also down in reports from the prior week.

On July 28th, the Fed Beige Report came out and indicated sluggish housing sales, a decline in housing starts, and a struggling commercial real estate market.

When reading news articles, you need to dig for as complete information as possible in order to understand what the data really means.

The home ownership rate fell to 66.9% which is the lowest level since 1999.  While the Case-Schiller Housing Price Index showed a May increase in prices, the data is actually indicating that prices are probably starting to decline, although those results may not show up in the Case-Schiller for months.

Negative home equity is still at 4.1 million homeowners with more than 50% negative and 5 million with 20-50% negative equity, although the number has declined from its 2009 peak.  Banks are holding foreclosed and repossessed properties on their books rather than try to sell them in this market and to procrastinate in writing down the value of the repossessed homes on their books.

On Monday, July 26, did the stock market react rationally to housing data or did it just hear what it wanted to hear?

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