April 26, 2006

New home prices crash (again) in February, and mainstream media asleep at the wheel again


Classic bubble behavior - units sold (i.e. dumped at the new low prices as the smart folks bail out) increased, as median price tumbled again.

It's interesting how the MSM are spinning this. They're reporting the GREAT NEWS - home sales up - as their headline. And they're quoting 2.2% decline in price - even though that's against March 12 months ago. The true price decline was down a whopping 6.5% from February.

The MSM also makes no point of the Centex $100,000 off sales, the huge incentives and cash-back used by builders to dump inventory, or the 8% commissions being paid. That would involve the MSM doing work of course, and not a rip-and-read.

Does anyone care what the cost of gas, or flour, or a milk was versus 12 months ago? NO! They care versus what it cost them last month. 101 folks.

Obviously, the smarter folks in the room see this as classic bubble behaviour. And that guy who bought a house 30 days ago for $1 Million that is now worth $65,000 less today.

Sales of new homes soared in March by the largest amount in 13 years, reflecting a rebound from bad weather in February. But the median price of the homes sold last month actually declined, providing evidence that the nation's five-year housing boom is slowing.

The median price, the point where half the homes sold for more and half for less, also showed a decline in March when compared to February, falling by 6.5 percent.

45 comments:

Anonymous said...

NPR did report it this morning.

Anonymous said...

report it is one thing.. report it correctly is another. report the important point (the 6% drop in price) is the most important thing

keith said...

lots of realtors posting the gain in sales volume in other threads on HP. Why? They got paid!!!

Of course, they don't mention the crashing prices and exploding unsold inventory.

Why people would ever trust these people, this profession, ever again, is beyond me.

Anonymous said...

I WISH there was a bubble bursting! Damn, how long does it take? Will it ever really happen where prices come down to what your average person can afford? I see it but I don't see it, at least in our area (Sin Diego). People aren't budging on their miserably overpriced dumps. We couldn't even afford an outhouse. My wife an I jokingly call it the "Sin Diego Rule": If it's a miserable dump of a tiny little old house, it's at least $450,000; if it's a semi nice tiny little old house, it's AT LEAST $450,000; if it's a nice home, maybe a little bigger, than you can just forget it.

uknowwhoiyam said...

report it is one thing.. report it correctly is another. report the important point (the 6% drop in price) is the most important thing

Both NPR and MSN did repot the price drop.

In spite of the 6% drop, you have to admit that the new sales figures were surprisingly strong.

Anonymous said...

My comment didn't get posted by accident.

Go to www.marketwatch.com and look up the story on the number.

That is the only place where the admit the truth:

New home sales up 14%.

The statistical margin of error? 15% !

I am not kidding.

uknowwhoiyam said...

Of course, they don't mention the crashing prices and exploding unsold inventory.

Do you ever read your own posts?! You're no different. You report exactly what you want. You gloss over a remarkable 13.8% increase in new home sales and focus on the price drop.

And then you turn around and criticize others for doing the same exact thing?!

How ironic. And hypocritical.


Why people would ever trust these people, this profession, ever again, is beyond me.

LOL. Try some introspection.

uknowwhoiyam said...

The statistical margin of error? 15%!

That also means that median prices may actually be up instead of down 6%.

Anonymous said...

The statistical margin of error on a number cannot be compared directly to a median price.

One you are measuring a raw number which naturally fluctuates, the second is an average of quantitative values, and medians fluctuate even less than averages.

It is the same as a stock market---the volume can change rapidly (by a factor of 10) within a short time and the price stays fairly similar, with absolute fluctuations nowhere as strong.

In fact, I think it is quite likely that volumes are increasing, even as sales decrease.

Look at the stock market bubble popping. Same phenomena happened: there was tremendous volume in shares even post 2000 and post 2001, especially with each dip and bear-market rally but yet it all ended up in the same place.

The fact that listings and unsold inventory hit a new record---much less fluctuation and subject to mismeasure than single home closings---shows the future direction far more accurately. Think of it as big fat blocks of limit orders piling up near the ask, even as the stock goes down.

Anonymous said...

Another fact.

Builders are more economically sophisticated than private homeowners.

They have carrying costs and cash flow needs and so are more aggressive at lowering price to clear out inventory as soon as they can.

I expect their maximum volumes to happen on the way down for that reason, until everybody is just plain exhausted.

Anonymous said...

Centex blowing up after hours, check it out!

CTX

Stressed_renter said...

I am in SoCal just listening to this from the KNX1070 news. The report is housing sales are up 36% followed by an ad for a loan company for a 1% minimum option payment 30 year fixed upto 1 million dollar. Joe six pack is going to go out and get this freaken loan to avoid been priced out again. There we go again. When will they stop messing with joe's brain. Seesh

Anonymous said...

Do not forget that RE is always local. These macro numbers mean little to REAL people who make their buying and selling decisions based upon their LOCAL conditions.

It is fascinating to discuss and investigate the NAR statistical methodologies but the actual results are fairly inadaquate crystal ball gazings that will have only a very slight effect on consumers behaviours.

Spring is here in my neighborhood and I have seen the Winter prices replaced by 20% HIGHER Spring prices - the suckers are on their way here for their mountain vacations soon.

And the houses are selling...God Gawd I fear for these young people with $600k in mortgage debt in a volatile time.

Mark said...

"The fact that listings and unsold inventory hit a new record---much less fluctuation and subject to mismeasure than single home closings---shows the future direction far more accurately. Think of it as big fat blocks of limit orders piling up near the ask, even as the stock goes down. "

This is the best analysis yet. . .yes I remember all those people who bought Cisco at $65, and Lucent at $80 (now at 2.90), put sell orders in at those prices thinking, "it would come back.". . .most finally took their losses and moved on. . . I admit I took a nice loss on an internet stock.

panicearly said...

margin of error 15%
thats what that report said.
link below.



The government cautions, however, that its housing data are subject to large sampling and other statistical errors. The margin of error is so large, in fact, that the government cannot say with confidence that sales rose at all in March. While sales were reported up nearly 14%, the margin of error was 15%.
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BB9C41293%2D88B8%2D4091%2D9A2E%2DAB483696AF5E%7D&siteid=mktw&dist

if the margin of error is 15% then you might as well use anecdotal evidence.

cereal said...

what's the big deal? there's gonna be a lot of back and forth probably right through the summer. come september you'll really feel the wind blowing from a different direction.

meanwhile, have a bar-b-que and enjoy life.

Anonymous said...

No way!

We want pain. We want suffering. We want writhing. We want domestic abuse and broken families. We want those smug "Our home is worth Xtimes what we bought it for" SOBs to avert their eyes when they see their smarter, more sophisticated neighbors WHO DID NOT SUCCUMB!
We want bankruptcies. We want evictions. We want to see great heaps of personal property sitting, waiting on the lawns of our neighbors. We want REVENGE!

Anonymous said...

Nah, we just want lower prices in Real Estate. So it costs a few people their jobs, find work somewhere else.

Anonymous said...

In San Diego, I keep hearing an ad for RealtWhores on the radio that emphasizes their honesty and integrity and how they must adhere to a strict line of ethics. If you have to keep convincing me...

Anonymous said...

we shouldn't draw any major conclusions from a single month's report anyway. As many economists have warned, there is a lot of "noise" in this data -- they are rough estimates. If the housing market is in decline, it will show in the trend over many months. Given all of the data we look at that supports the thesis -- sharply lower mortgage apps, rising inventory, rising rates, affordability measures, and the abundant anecdotal evidence from Florida, DC, Boston, Phoenix, Vegas, San Diego, etc, we can all be confident that the overall trend will continue to head south for both volume and prices.

uknowwhoiyam said...

The statistical margin of error on a number cannot be compared directly to a median price.

I didn't compare it directly.

Since an accurate median sale price is dependent upon an accurate sales total, if the sales total has a large margin of error, then median sale price - a dependent statistic - must also have a large margin of error.

Anonymous said...

Today's news was an unequivocal disaster for existing homeowner/sellers. So they are building more and more homes and selling them for less money y-o-y and m-o-m. More inventory and lower prices...oh, and of course 10 year treasuries are solidly above 5% with strong inflationary trends which means even higher future treasury rates. The end is nigh.

David said...

I also posted about the misleading media headlines.

David
Bubble Meter Blog

Anonymous said...

After reading the NAR report today, I saw that most homebuilder stocks were up 2-4%. I decided to short Toll Brothers stock because I also felt the NAR report was misleading. I can't wait to see 2nd qtr or 3rd qtr OFHEO data.

Think about it...all possible error aside, a 14% sales increase combined with a 6% price decrease adds up to a HUGE reduction in earnings for homebuilders. There is a large amount of fixed costs for these builders...they've already dumped a lot of money into building and marketing the properties.

Most homebuilders have had approximately 10% profit margins. Assuming no variable costs (bear with me on this assumption) the 14% sales increase translates into a 14% earnings increase as well. However, a 6% PRICE decrease translates into a 60% EARNINGS decrease. The net effect is approximately a 50% reduction in earnings -- probably not quite this bad since there are some variable costs, but still not good.

Dave Barnes said...

It is time ban this phrase:
"median price, the point where half the homes sold for more and half for less"
Let's just say/write: "median price".
If you don't know what the median is, then go sell burgers at McDonalds.

Anonymous said...

Wow!!! The first article on the RE industry in weeks. Is this still a housing bubble blog or is it an extremist political nutcase blog now?

keith said...

"Wow!!! The first article on the RE industry in weeks. Is this still a housing bubble blog or is it an extremist political nutcase blog now? "

Truth - headlines at HP on real estate this week:

If everything is getting more expensive, why is the CPI inflation reading so tame?

With a straight face, NAR says existing home sales grew 0.3% in March

Bubble bench update

This article sums it up nicely: The Housing Bubble Has Popped

Does anyone know anyone, ANYONE, seriously looking to buy a house today?

HousingPanic exposes UK's Firstrung.co.uk - another biased member of the real estate industrial complex

More real estate corruption in the UK exposed by BBC - "Shocked, shocked I say!"

HousingPanic nominations: What US city is the face of the housing bubble today?

Anonymous said...

I reckon all of those new homes/condos "sold" at last years prices, last year, finished construction, got their CO's, and then all closed at once, recently. This would skew the real "Number of Closings" count some what up ward for the first part of this year.

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brokersleaveyoubroke said...

The big increase in sales and the lower median price would indicate that the builders are having some agressive clearence sales. the bad news is that everybody that bought a new house with zero down before this month is now underwater on their mortgage. I don't suppose it feels much better if you put something down and now you're watching that equity evaporate.

Anonymous said...

6.5% is a "crash"? get a grip you loser. Hype, all hype.

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