Is housing worse than the numbers show?

Posted by: Dean Foust on May 24, 2007

Today’s statistics for new homes sales—up 16% on a seasonally adjusted basis—looked surprisingly good. Too good, I suspect, for one construction.jpglong-term housing market observer, consultant John Burns, who even before today’s report had been warning his clients for more than a year about distortions in the data for new and existing home sales, which he believes is lulling policymakers into believing that the housing downturn has been relatively modest and no cause for alarm.

Burns raises a host of questions that he says conflict with the official sales data. For one, He says his firm purchases and compiles home closing data for 181 key counties in the U.S. where 55% of the population lives, and his data shows that sales have fallen 22% over the past 12 months over the prior 12-month period. He also notes that the Mortgage Bankers Association’s purchase application index – in effect, a measure of the number of people filling out loan applications – is down 18% from its 2005 peak. His question: How could sales have fallen by less than 18%?

Burns also points out that the nation’s two largest homebuilders, D.R. Horton and Lennar are reporting that orders have declined 27% to 37%, year over year – again, far less than the official numbers. And they both have dropped prices significantly in many markets to generate sales, while the resale market hasn’t. Why not?

Thought provoking. For Burns’ full analysis, click here.

Reader Comments

rich

May 24, 2007 8:29 PM

There's no reason to doubt today's numbers. They didn't report that 90,000 new homes sold nationwide in April, give or take a statistical margin of error of maybe 10,000. They said: 90,000 deals were made to sell new homes.

Have you ever seen Glengary Glen Ross? This is what happens when homebuilders and swamp sellers get very desperate. They make deals, any deals, to move merchandise. A large number of those 90,000 deals will fall through, like Jack Lemon's deal in Glengary. Some of those deals were made on almost giveaway terms. They undercut prices of all other homes in the same market. For what?

So sales people could meet their quotas. You think this is good news? It wipes billions of dollars of home equity off the books. It will trigger more panicky selling among homeowners in the same markets, at lower prices. It's what happens when builders make huge overbuilding mistakes and then have to correct mistakes quickly (at any cost) or risk going out of business.

CRAZY G

May 25, 2007 10:31 AM

A quick comment on many of these reports, would be, that they are based on a """STATISTICAL SURVEY"", with ''margins for error'...

People are quick to read the survey, but neglect to read the error margin....

The one the other day about housing sales, had an error margin of +/- 13%,,
Which gives you a total of 26% error....
E.G]....16% increase with a 13% error could take you from 3% to 29% increase....

SSOOO!!! ""IF"" I said to you that housing sales went up somewhere between 3% & 29%, we're just not sure, you'd turn and walk away, thing I was Crazy or something....

Well, I AM....And you'd have to be Crazy also to believe all that crap!!!!

Morris Township Homes

May 25, 2007 10:36 AM

It is all depending on where you live. Here in Morris County, though the market is slow, prices are holding up, and inventory is dropping. There are many towns where the number of sales is about the same as last year with inventory actually 15% or more lower than last year.

James

CRAZY G

May 25, 2007 8:30 PM

Well Mr Morris Township Sir;
I'd say you are blowing smoke, because in most cases '''RESIDENTS'' of the community can ""NOT"" afford the houses for sale in that community....
Without YOUR data, on affordability, your claims mean nothing....
The fact that you claim prices are holding up, is a ''tip-off' to which side of the equation your on....Most people would like lower prices, so as NOT to pay higher taxes

JanB

May 29, 2007 7:45 AM

The situation is WAYYY worse than lots of folks would have you believe, and what we're seeing now is just the tip of the old iceberg---Let's look at the facts--

Demand is tanking (people know homes will be cheaper tomorrow)--read late 2008

Supply is exploding (as investors flee and foreclosures rise).

The available pool of homedebtors is shrinking (thank you subprime wipeout

It's significantly cheaper to rent than buy today (it's always about the P/E)

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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