Many of you who rely on the various housing data reports each month no doubt were mystified by the dueling headlines that showed up within days of each other in May. The first suggested that the drop in existing home sales was another sign the housing market was in trouble. But soon after came stories proclaiming that a jump in new home sales was a hopeful sign of housing market recovery. Which headline should you believe? Perhaps neither; after all, many of these articles neglected to mention that new-home sales are still down more than 10% from a year ago and more than 20% from two years ago.
The unfortunate reality regarding America's housing statistics is that the reports from the U.S. Census Bureau and the National Association of Realtors often are taken out of context. Reporters typically trumpet the latest, preliminary numbers. Additionally, the Census Bureau's new-home sales figures are based on single-family homes alone, have a very small sample size, and do not take into account cancellations of sales contracts. Existing home sales information from the National Association of Realtors tends to be more reliable, as the sample size is much larger, but it too gets revised in subsequent months–a process that does not often make the headlines–and this data type tends not to be as much of a leading indicator as is the new-home information.
With a flurry of economic and housing market indicators released every week that at times seem contradictory, gleaning meaning from these signs can be like reading tea leaves. The answer is not to ignore these indicators out of frustration, but rather choose the most important ones and peel back the layers of methodology to determine what the numbers really mean, instead of taking a headline at face value.
So, that said, what in our expert, longer-term opinion should we conclude about some of the latest reports? First, it seems the phenomenon of a housing boom during an economic downturn is finally reciprocating more than five years later. The Dow Jones Industrial Average has been pushed to record highs lately, despite disappointing news in the housing market. The economy and job growth have been chugging along at a moderate pace while new and existing home sales have stayed sluggish. The much-anticipated spring selling season has not resulted in any significant trend toward recovery, and home builder sentiment remains subdued.
Recent building permit reports also point to continued slowing in construction activity in coming months. April permit data showed that filings fell to the lowest annual rate since June 1997 and represented the largest percentage drop in 17 years. Weakness in the housing market has led to builder confidence declining for the third straight month to its lowest levels since September. The slower housing market has provided stabilization in the index for rents and owners' equivalent rent in the consumer price index (CPI), which helped in reducing core prices in April. The annual increase in the core CPI (i.e., excluding food and energy) in April was the lowest since April of last year, easing some inflation fears.
Again, keep in mind that the economic indicators that get the most headlines don't tell the whole story about the state of America's housing. Before making strategic decisions, try to garner the advice of experts who are familiar with these data types; while they may not be able to tell your fortune, they can help you interpret the latest statistics properly so you can make an informed decision.
–Jonathan Dienhart heads the Published Research Group for Hanley Wood Market Intelligence, a division of ProSales' parent company, Hanley Wood, LLC.
Hanley Wood Market Intelligence provides data and consulting services on residential real estate development and new-home construction, including analysis of key trends impacting the housing market through its proprietary software products and research reports. Contact: 800.639.3777. www.hanleywood.com/hwmi.
