Falling Mortgage Rates Increase Buyer Subsidy But Don’t Stimulate Sales

There were two important releases on the US housing market [on Sept 23]. One is the widely followed Existing Home Sales report from the NAR and the other is a lesser known but more in depth report from the online real estate brokerage Redfin.com. The Wall Street Journal reported that “Existing-Home Sales Fall for Second Straight Month,” referring to the NAR report. Redfin’s report took a more positive slant on its data, but it gets more media coverage. Redfin also pointed out, correctly, that calendar factors played a significant role in the August numbers.

Summarizing the data, the Journal reported that, “Sales of previously owned homes fell 0.9% from a month earlier to an annual rate of 5.33 million, the National Association of Realtors said Thursday. Economists surveyed by The Wall Street Journal projected home sales would reach a rate of 5.46 million in August.” Oops, there’s the bugaboo of seasonally adjusting a month and then multiplying that number by 12 to magnify whatever adjustment error is inherent in the monthly report.

The WSJ summarized its analysis thusly. “The latest drop is fueling concerns that the market is becoming a victim of its own success, with a run-up in prices in big metro areas leaving many homes unaffordable for middle-class families, including first-time home buyers.” Fair enough. That sounds reasonable to me.

The Journal did note that, “The market remains steady over a broader period, with existing-home sales up 0.8% in August compared with a year earlier.”  Oddly enough at this time last year the Journal reported that August 2015 sales were down by 5.3%, a truly terrible performance that was much worse than this August. Could it bee-e-e-e-e, SEASONAL ADJUSTMENT? 

The actual, not seasonally finagled data showed sales up by 28,000 units this August to 541,000, a gain of 5.6%. In August 2015 sales FELL by 47,000 units or 9.8%. In August 2014, there was a drop of 1,000 units. Parents are getting the kids ready to go back to school in August. Other families are taking their last vacations of summer. August sales are lower than July’s more often than not. So how is it that the largest August increase since 2012 turned into a reported drop in sales?

In this case I must give the statisticians the benefit of the doubt. The calendar was, indeed a problem. Redfin gave us a heads up on this point. “The boost was due in part to a calendar aberration in July that pushed out some closings into August. In addition, August 2015, when sales slid 18 percent from the previous month and grew by just 2.6 percent year over year, was the low point in an otherwise strong year for housing.” The WSJ failed to mention this point.

Read the rest of this report and see the charts at David Stockman’s Contra Corner.