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Housing Data: Shiller Unaware Bernankinflation Winning

There were two major housing data releases today. One of them is important. The other was a misleading misdirection play, that is leaving its creator clueless.

Due to its peculiar and excessive smoothing methodology, the housing Case Chiller is always behind the curve. It uses a 3 month average of sale prices closed in the 3 months up to the last reported month, in this case December, January, and February. That means that the data represents the average price of contracts closed over a 3 month period with a time mid point of mid-November. Need I remind you, it is now the end of April. The Case Chiller data represents the market more than 5 months ago.

This would be like the Wall Street Journal reporting only the Down Jones Industrial Average 65 day moving average as of November 16. Really, who gives a crap about what the 3 month average of the Dow was 5 months ago? Do you? I didn’t think so. So why pay attention to the Case Chiller?

This is totally worthless data, yet the media continues to report it as if it means something.

Actually, there was a third release today. The Federal Housing Finance Agency (FHFA aka Foofah) monthly price index was also released today. The Foofah data is not quite as slow. It uses sales only from the last available month which in this case is February. It at least recognized that a turn took place for sales closed in February.

The Conmerce Department released its new home sales data. This is really crappy data because it uses a tiny sample survey that gets revised every month for 5 months until the sample size is statistically significant. That being said, it does have certain advantages, and the revisions have not been so large that they change the absolute direction of the index.

The new home sales price data, while more volatile than the ultrasmooth and useless Case Chiller, uses contract prices from the previous month, not closed sales from two, three or four months ago that went under contract two months before that. It is the most current index of actual contract selling prices, released with a lag of just a month. Trends can be isolated by deriving year to year changes. Median and average annual price changes in new home sales have shown consecutive steep increases in both the February and March data.

New House Sales Price Chart- Click to enlarge
New House Sales Price Chart- Click to enlarge

I watched an interview of Robert Shiller today. It was painful. He seemed confused and uncertain about what’s going on. Due to the painfully slow data collection and excessive data smoothing of the index bearing his name,  Shiller has missed the turn. Professor, the supply demand equation has two parts. Low prices have cause supply to be withdrawn from the market, bringing it into equilibrium with historically weak demand. Bernanke inflationary policies are causing house prices to inflate, just like oil prices. Housing is a necessity. When it’s as cheap to own as it is to rent, and there’s too much free money around, guess what? Prices for necessities rise.

New house median sales prices were up 6.3% year over year in March. That was the second straight year over year increase. The new house average sale price was up 11.7%, also the second straight increase. Average price is skewed by product mix. The market isn’t up 11.7%, but it’s the direction and consistency of the data that’s important.

The NAR’s data for March showed its second straight monthly increase, at +5.7% for the month, with a year over year increase of +2.5%. And now the FHFA shows slight a year to year increase for sales closed in February mostly contracted in December, the weakest month of the year.

Current, real time national listing price indexes (Housingtracker. net) have shown excellent predictive value in reflecting in real time the direction of the lagging closed sale data. They have shown year to year increases since December and are up 3.7% year to year through this week. In March, at the time corresponding with the March new home sales contract data, they were also up 3.6%. In January, at the time corresponding with the NAR’s March closed sales data (on average, January contracts) they were up 2.9%. The NAR’s corresponding closed sales data showed an increase of 2.5%. A wide variety of data is consistent in showing year to year increases in prices for the first time without the benefit of tax giveaways, or pending increases in FHA fees.

Actual, not seasonally fudged, builder new house inventory was revised down for each month from November to February. At 144,000 units, builder inventory is now at it’s lowest point in 50 years. That is not a typo. Five oh. The records only go back to 1963.

Furthermore, existing inventory is being made obsolete at a breakneck pace as the scary bogeyman called “shadow inventory” removes hoouses from the market through locational, physical, and functional obsolescence faster than they can be placed on the market. Shadow inventory is like shadow boxing. It isn’t going to hurt anyone, except the banks and institutions that own them, and ultimately the US taxpayer, who will be forced to pay for the banksters’ losses because Fannie and Freddie guaranteed most of those loans.

The new home sales actual inventory to sales ratio at 4.5 is the lowest since August 2005.  Demand is historically weak, but supply is now aligned with that fact. An uneasy equilibrium has been reached.

New House Sale Price Chart- Click to enlarge
New House Sales Chart- Click to enlarge
New House Inventory Since 1963- Click to enlarge
New House Inventory Since 1963- Click to enlarge

Completed units in inventory were revised down 3 of the last 4 months. At 48,000, completed unit inventory has never been even remotely close to being this low.

Not seasonally adjusted actual monthly sales were revised up for all months November to February. That is the first time I’ve seen that in 7 years of watching this data closely. Sales are still extremely weak historically, but tight supply and Bernanke’s unholy suppression of interest rates are reigniting inflation. Shiller says that housing will stay depressed for a generation. I’d fade him. If anything, prices will surprise to the upside much sooner than anyone thinks.

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  1. Trader Joe

    “The crash is over,” Mark Zandi, chief economist for Moody’s Analytics Inc. in West Chester, Pennsylvania, said in a telephone interview yesterday. “Home sales — both new and existing — and housing starts are now off the bottom.”

    I’ll add, from my neck of the woods — and seeing that I pointed out the turn MONTHS AGO (Yay! me, where my prize?)

    Things are picking up here on the spec. $1M+ tear-down replacements ( example below).

    Used to be that they would sit For Sale anywhere from several weeks to several months during 2007-2010.

    In 2011 that consistently became “just weeks” starting around fall.

    Now a new dynamic has started occurring, the NEW houses are going under contract before the old house is even demolished.

    As a result of all the tear-downs the inventory of 1950’s junker homes is just about gone.

    So these spec guys are going to have to move to the next tier — the not so junky homes, and move up prices to get those owners off the dime.

    Problem is, once folks get even the whiff of a recovery they will pull their house off the market and wait. In fact, this is already happening.

    Just one case study from the NJ suburbs:
    — along the midtown direct corridor (train service direct into Manhattan)
    — land of big pharma
    — and where cops get six-figure retirement packages at age 52

  2. ole c g olesen

    OK… so You say … TIME will show … whether You are right or not.
    I have a small concern .. since You on these pages reported to have been invited to sme dinner with some US political dignitary ..Your reporting has become so much more positive in regards to the state of US Financial situation .. consistantly portraying small improvements in positive notes … which i cannot see… considering the fundamental abysmal situation of the US … just take a look at the continuous desperate need to BORROW money from abroad with NO END in sight ..
    so whats Your… honest explanation …. or do You need to sell a house ? Sorry .. but thats what comes to my mind … and I have followed Your reports for some time now

  3. Lee Adler

    You’re fucking kidding me, right? I sold my house in June 2005, and I was steadfastly bearish on the housing market until last year when I began to see signs of change and reported on them.

    I certainly never met with a current US political dignitary. The person you are thinking of, David Stockman, may be called a dignitary, but he is a HUGE CRITIC of the system.

    Since my business is selling newsletters, my job is to get it right. My only allegiance is to digging into and analyzing the facts. If I see hints of inflation, then that’s what I’ll write.

    If I’m wrong, time will show that.

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