Monday, August 27, 2007

The Housing Depression is not over yet - Part IV

The headline used by the mass media, burdened with an insatiable need to oversimplify everything they touch:

New-home sales rise 2.8% to 870,000 pace in July

Reason number 4 you should ignore the headline - Revisions.

Once again from the Commerce Department Web site:

Historical Revisions

Historical revisions are quite extensive, ranging from -10.8% to -0.2%, with an average of -4.9%. Geographically, the West is the most volatile with a range of -20.1% to -2.0%. Now in case you forgot, the West was the only region to show growth in the report today. Here is the table:

Here is a real life example of the effect of these revisions. The Commerce Department also estimated today in its release that July 2007 new home sales were 10.2% below the July 2006 estimate of 969,000. The media ignored this number, and instead focused on the month-to-month “increase” of 2.8%.

The problem is that when the July 2006 estimate was released on August 24, 2006, the number was initially reported as 1,072,000, not 969,000. That is the effect of the "final" revision. in that case, 100,000 homes. Our conclusion then is that the so-called 2.8% month-to-month increase is nonsense since the June 2007 data will be revised substantially over the coming months.

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