Absurd surges in new home sales activity were not significant…Headline reporting of this series is of no substance, as seen frequently with massive, unstable and continuously shifting revisions of recent history… – John Williams, Shadowstats.com on the June report.
Like everything else going on in the financial markets, the Government’s new home sales report is thoroughly inconsistent with all of the actualized supporting data and bears absolutely no resemblance to observable reality.
The Census Bureaus, which is notorious for producing fraudulent data, reports that new homes sales hit a 9-year high in July on a “statistically adjusted, annualized rate” basis. However, it had to revise its original report down for June to 582k from 592k. Bloomberg theatrically describes the report as indicating “sky high momentum.” These are, of course, fairytale numbers.
This is how John Williams of Shadow Government Statistics described last month’s new home sales report: “Despite ‘benchmarking’ to the unstable seasonal-adjustment factors with the April 2016 release, this series remains extraordinarily unstable and consistently unreliable on a near-term month-to-month basis as weather headline sales increased or decreased.” (Shadowstats.com)
The Government’s numbers were “driven” by an unexplainable 18% surge in new home sales in the South. Yet, according to Redfin.com’s data for July, homes sales for July in the south’s biggest MSAs (population areas) cratered: Atlanta -12.9%, Dallas/Ft Worth -13.3%, Miami -24.2%, Orlando -16.1% (LINK). In other words, the Government’s metric conflicts drastically with observable reality.
Additionally, the new home sales report is entirely at odds with the ongoing economic contraction as reflected in most private-sourced economic reports. This morning, for instance, the Richmond Fed’s manufacturing index collapsed the most on record (going back to 1993). Another report on U.S. manufacturing activity released this morning showed continued weakness in the manufacturing sector, with the employment index at its lowest in four months. If economic activity is contracting and real jobs (not Census Bureau fake jobs) are declining in number, homes are not being purchased. Again, the new home sales report does not fit the facts.
Finally, in the report it showed that new home inventory is declining. However, I look at several new homebuilder financial reports every quarter and they all show inventory levels that are ballooning (and being financed with debt). For instance, Toll Brothers reported this morning (more on that later) and its inventory level of new homes increase 5.3% from the end of last quarter and 6.8% from the end of January. DR Horton is the country’s largest new homebuilder, its inventory level has soared nearly 10% over the last four quarters.
Also, the same Census Bureau has been reporting well in excess of 1 million supposed housing starts for the last several months. How is it possible that starts exceed sales by a significant amount and yet inventory is said to be shrinking? Once again, the facts do not fit the report.
Remember the Redfin.com report referenced above when existing home sales are reported tomorrow. The National Association of Realtors uses the same statistical meat grinder used by the Government in producing its seasonally adjusted annualized fictional account of the housing market.
As far as demand at the lower end of the market, I will republish the market color I received earlier this month from one of my Short Seller Journal subscribers, who has been a real estate professional for over 3 decades:
You are spot-on the housing market. I think the flippers in Denver metro are driving the under $400,000 price to a frenzy and the over $500,000 in the burbs are dropping in price. Some of these flippers have 8-10 houses at the same time. A little jiggle and they will dump. Then the part time rental landlords follow in selling as the rental market gets tough.
The only reason that prices keep rising is because the Fed’s near-ZIRP interest policy and the Government’s sub-prime dressed-in-drag mortgage-lending programs have enabled buyers to pay more than ever for a home and make monthly payments – for now. As the real economy continues to implode, delinquencies and defaults will pile up as quickly as they did from 2008-2010, led by the flippers reference in the quote above.