New Home Sales Miss Expectations – Government Data Is Useless

Housing has been converted into a financial “asset” because the value of a house, and the ability to buy a house, has been irrevocably predicated on the amount of debt the buyer of the home is able to assume in order to pay for the house.  The housing bubble is more dangerous than the stock bubble.  Underneath it all is a catastrophic level of debt.  The middle class will not survive the next housing downturn, which has already started.  – Investment Research Dynamics/Kranzler Research

The Government’s Census Bureau reported new home sales for November.  The reported number – 490k seasonally adjusted, annualized rate (SAAR) – was a 20k increase over the October number.  There’s just one problem:  October’s number was originally reported to be 495k but was revised down 470k.  In fact, the Census Bureau has revised down its reported results for the last five months.  For the record, the November number – whatever it really may be – missed the Wall Street brain trust consensus estimate of 500k.

By the way, the downward revisions for September and August were not insignificant. September was revised lower by 26k (468k down to 442k) and August was revised lower by 27k (529k to 507k).

I’m not going to dissect the details of the report simply because the report itself is a complete statistical abortion.  You can examine the report yourself if you want to subject yourself to statistical torture:  Alleged New Home Sales For November.

To give you an example of the insanity behind the data, let’s examine the October to November comparison.  The Government originally stated that there were 495k SAAR new homes sold in October.  That number was revised down by 5.1% to 470k.  The Government is telling us now that 490k new homes SAAR were sold in November.

How reliable is this number?  In the report the Government shows a “90% confidence interval” for its guesstimate.  This interval defines the upper and lower bound within which the Government guesstimators are 90% confident that their number would fall.  For the Oct to Nov comparison, the 90% confidence interval for the 4.3% increase over the revised October number is +/- 12%.  The Government is telling us that there’s a 90% chance that new homes sales were down as much as 7.7% or up as much as 16.3%.  “Oh, by the way, we will probably be revising November’s number down next month so you’re better of off just ignoring these results.”  (That last sentence was editorial addition).

But wait, it gets better.  For the west region, the Government is reporting that new home sales jumped 20.5% from October.  The 90% confidence interval is +/- 27%.  In other words, the Government is 90% confident that the number of new homes SAAR sold in November in the west was somewhere between down 6.5% and up 47.5%.   The Government might as well just state that it is 100% confident that the real rate of increase in new home sales number for November over October in the west was somewhere between -100% and +100%.

The irony of this whole analysis is that, in all likelihood, when December’s number is reported a month from now, there’s a high probability that November’s reported number will be revised lower.  To say this is “insane” is an gross understatement of the definition of “insanity.”  The bottom line is that the Government’s new home sales report is completely useless and meaningless.

On the other hand, this is an exceptional opportunity to make money in the homebuilder sector.  Homebuilder stocks are more overvalued now than they were at the peak of the housing bubble in 2005.   My Short Seller’s Journal report this week featured a homebuilder that has been posting unit sales declines this year and which I believe will drop at least 40% by June (unless of course the Fed can continue successfully keeping the stock bubble inflated).   The first week’s report featured an manufacturing company that relies on sales to new homebuilders.  It also relies heavily on international sales, which will evaporate along with the global economy – just ask Caterpillar…

This week’s report also includes a “stocking stuffer” – you can subscribe by clicking here: SHORT SELLER’S JOURNAL.


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