I saw an article this morning touting a surge in new home sales in June. A later article today in the Wall Street Journal put that in perspective. It's an interesting lesson in not taking the first good or bad news you hear at face value. Here's the article below.
Home Sales Fail Inspection
By MARK GONGLOFF, Wall Street Journal
Many investors celebrated Monday after June's "surge" in U.S. new-home sales. Alas, it was largely wishful thinking.
True, the Census Bureau reported sales up 11% from May. That's a big number, at first glance justifying Monday's 4.5% leap in the Dow Jones U.S. Home Construction Index. But it fails a close inspection.
First, home sales quite often jump in June, the height of the spring selling season. When trying to gauge the strength of home sales, then, it makes more sense to compare them to the same month a year ago. That comparison is less kind -- sales were down 21.3% from June of 2008.
Seasonally unadjusted data show a total of 36,000 new homes were sold last month, the lowest June total since 1982, notes Richard Moody, chief economist at Forward Capital.
And the Census Bureau warns against assuming too much precision in these numbers, which are based on a sample survey. Accounting for a 13.2% margin of error -- at a 90% confidence level, suggesting the actual error could be higher -- new-home sales enjoyed somewhere between a 24.2% gain or a 2.2% decline from May.
New-home inventories are falling, an encouraging development. But inventories are still higher than their historical norm, and there remains an avalanche of distressed sales.
Little wonder, then, that June's "surging" sales were driven by heavy discounting. The median new-home price -- not seasonally adjusted -- fell 12% in June from a year ago to $206,200, the lowest June sales price since 2003. And it was down 5.8% month on month.
To paraphrase Pyrrhus, if sales keep soaring like this, then homebuilders will be utterly undone.
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