Tuesday, August 24, 2010

Hmmm, was the housing data really that bad?

Well, yes and no. Yes, existing home sales did plummet, plunge or cliff dive 27% in July vs. July of 2009, but keep in mind that volume doesn't always influence price.

We saw a very similar effect in the auto market in the months after the cash for clunkers expiration. Car sales plunged because people that had been on the fence decided to take advantage of the program. Home sales surged in April as people rushed to get their latest sugar high... I mean tax credit.

What is much more discouraging for the rebound crowd is the huge jump in inventory with over 12 months of housing supply now on the market. This eventually will lead to lower prices unless many, many homes are taken off the market in the next couple of months.

I think the markets are in continuous feedback loop where traders keep reading about technical signals that are being triggered daily because the market keeps falling. However, the main stream media's breathless coverage of the drop back to Dow 10,000 might actually be a contrary indicator so it's important to be nimble.

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Two crazy data points out tonight. The CBO updated their estimate of economic activity from the American Recovery and Reinvestment Act. The CBO now estimates that ARRA added between 1.7% and 4.5% to second quarter GDP. The mid-point of this range would be 2.8% in the second quarter when GDP was reported at 2.4%. So under this set of data it's clear that economic activity would have been negative in Q2 if not for the stimulus.

Also keep in mind that the BEA will be updating it's Q2 GDP estimate this week and the estimated revision is expected to take GDP down to 1.3%. With this set of data it would mean that Q2 GDP was somewhere between -0.4% and -3.2% ex-stimulus or solidly within "recessionary range".

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Oh boy, some people are extremely inventive when it comes to figuring out new ways to screw Joe or Jane consumer.

"But in some new developments, homebuilders are including in contracts a 1% fee to be paid to them every time the house is sold -- for 99 years. And the money doesn't go for improvements or upkeep: It's just money in the builders' pockets."

A 1% fee every time the house sells for the next 100 years, now that takes guts. I bet I know a few architects that would like to get in on that action.

Cheers.

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