What about the biggest rise in existing home sales on record in December? These guys are offending my sensibilities. By virtue of all the fake statistics and bogus market action, there has to be something seriously wrong right now. – John Embry email to IRD
Existing home sales are based on a sample estimate of contract closings. The actual “sale” took place when the contract was signed 30-45 days ago. The headline report is based on a “seasonally adjusted annualized rate.” The big farce about statistics, away from the obvious fact that “seasonal adjustments” are a polite way to say “statistically manipulated,” is that the metrics reported in terms of percentage changes can make an economic report sound a lot better than the underlying reality.
The underlying reality in today’s report is that allegedly a technical glitch cited by the NAR pushed some closings from November into December and therefore artificially depressed the November number and artificially inflated the December number. This is only part of the explanation for the 14% seasonally adjusted annualized rate of increase for December vs. November. The balance of the 14% seasonally adjusted annualize rate metric is most likely attributable to the “seasonally adjustments” applied to the sample data. It’s analogous to taking the scraps of pig of the slaughterhouse floor and putting these scraps though a grinder to produce “sausage.”
By the way, does anyone find it a bit suspicious that a “seasonally adjusted annualized rate” metric is used to describe what may or may not have occurred during one month? Think about that.
Notwithstanding this statistical smoke and mirrors, pending home sales for November dropped 1% vs an expected rise of .7%. Pending home sales are contracts signed, most of which evolve into closings, which become existing home sales. Some of this decline in pending home sales should have been reflected in December’s existing home sales – in other words, it calls into question the credibility of the existing home sales report.
Furthermore, the November pending home sale number should translate into lower closings, i.e. existing home sales, for January. That latter assertion relies on an unwillingness of the NAR to completely lampoon the statistics for January’s report- an assumption that may be highly naive based on the degree to which the NAR has been adulterating the statistics for at least the last year.
One last thing. If you find yourself wanting for some intellectual entertainment this weekend, compare the commentary from the NAR’s Larry Yun in the Pending Home Sales report and his commentary in the Existing Home Sales report. It epitomizes the phrase, “through the looking glass.”
The homebuilder stocks are rebounding right now on the back of that rigged existing home sales report. One of the featured stocks in this week’s report will either be a homebulder or a homebuilder supplier. The last h/b supplier I featured is now up (i.e. down in price) over 13% from the 12/7/15 report. The last h/b I featured 2 weeks ago is now down 8%. You can access my Short Seller’s Journal here: SSJ Subscription