Economy & Policy

A tale of two housing markets

By Barbara Kiviat | July 27, 2009 | +

JuneDistressingGap

Calculated Risk put up this chart today after the new-home sales numbers came out. The uptick in the red line is the stuff of headlines: CNNMoney.com’s was “New home sales: ‘Really good news’; Sales of newly constructed single family houses rose 11% over May, but median price fell 3%.” Yet I prefer to look at the chart for two reasons.

First, what the Census Bureau and HUD actually said was that sales were up “11.0 percent (±13.2%)*.” Follow the asterisk to the footnote and you get this clarifying bit of information: “90% confidence interval includes zero. The Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero.” So it’s probably a good idea to ignore the size of the reported gain and to at most consider the direction the data is headed, which a chart captures better than a single data point.

Second, what a great chart. It’s not the first time Calculated Risk has put it out, and I hope it’s not the last. That area they’re calling the “Distressing Gap” exists because distressed sales (of super-cheap foreclosures) make up such a large chunk of existing-home sales. The sales activity reflected in the blue line isn’t healthy as much as it is desperate. Well, unless you consider getting rid of excess inventory and debt overhang as healthy—which I guess I do.

The ongoing problem for new-home sales, then, is inventory overhang. We’ve been dropping on that count, and are now at an 8.8-month supply, assuming houses keep selling as fast as they have been. That’s a lot better than where we were—a 10.7-month supply a year ago. Just keep in mind a normal market would have something closer to a 6-month supply.

Barbara!

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  • jff

    agreed. agreed. agreed.

    also, the first-time homeowner credit and California’s version of it also subsidized things considerably.

  • Barbara Kiviat

    Excellent point, jff. It will be very interesting to see what happens at the end of the year, when the federal tax break for first-time homebuyers stops.

  • debtnation

    That’s an odd graph. I’m surprised the proportion of new to existing home sales remained constant for so long. Do you know if that is the case going back 30 or 40 years?

  • debtnation

    Nevermind. I clicked on the Calculated Risk link above and it shows a graph of the ratio going back to 1969.

  • braktalk88

    Distressing Gap? Don’t look at me…

    There’s no footnote @ the bottom either.

  • http://thesurvivalistforum.com/wordpress/?p=633 Statistical deceptions | The Survivalist Forum

    [...] Census Bureau itself notes that the reported 11 percent increase in June home sales might be illusory. The reporting agency says that the gain is not statistically meaningful at a 90 percent confidence [...]

  • http://thesurvivalistforum.com/index/?p=18 The Survivalist Forum » Blog Archive » Statistical deceptions

    [...] Census Bureau itself notes that the reported 11 percent increase in June home sales might be illusory. The reporting agency says that the gain is not statistically meaningful at a 90 percent confidence [...]

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    [...] like a gain. The Census Bureau itself notes that the reported 11% increase in June home sales might be illusory. The reporting agency says that the gain is not statistically meaningful at a 90% confidence [...]

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