The Housing Market: Never Analyze Statistics In A Vacuum

In May, several analysts, who should have known better, were all a twitter over the supposed improvement in housing statistics. It was especially true for those analysts who appear to be in the tank for Obama.  After all, an improving housing market, in an election year, can only be a good thing for Obama's reelection chances. Take for example, this May video of Ali Velshi at the always-Obama-loving CNN (click to view). My God!  He was so excited he actually said the housing numbers "shows signs of remarkable resurgence".  Of course, Velshi violated the first rule of analyzing statistics which is: One month doesn't make a trend.  In fact, a month later, the newest set of statistics are now showing a worsening of the housing market.  In June, new homes sales fell hard; down by 8.4%.  At the same time,  sales of existing homes fell by 5.4%.  Completely gone was that "remarkable resurgence."

Where people like Velshi make their mistake is in not understanding what, sometimes, causes anomalies in statistics.   The fact that home buying was up in May had less to do with Americans suddenly buying homes again; and, more to do with the value of the dollar and how that caused foreign investors to swoop in and snatch up real estate deals in terms of their own, improving currencies.  Check out this March article that appeared in the L.A. Times: Foreign buyers are snapping up U.S. homes. Apparently, that buying activity has now ceased with the fall in June sales. Probably, because foreign investors now see a risk in U.S. real estate with the apparent weakening of our economy.

Then, there's the issue of  rising home prices; and, a surprising reduction in the number of foreclosures; and, a reduction in the inventory of unsold homes.  Well, those positive facts are just temporary; and, have a lot to do with the fact that, over the last year-and-a-half, the number of foreclosures has come to a near standstill following the robo-signing foreclosure scandal and the resulting passage of nearly 400 anti-foreclosure laws across the entire United States.   Basically, the scandal had to do with the fact that banks were foreclosing on people without having, in their possession, all the original mortgage documents.  This was due to the fact that high risk mortgages were being sold from one bank to another during the height of the housing boom; and, the paperwork got misplaced in the process.   So, then came the laws that prevented banks and other lenders from foreclosing on anyone unless they had all the paperwork to support it.   Of course these laws completely ignored the fact that homes that were or would have been foreclosed on were all in arrears on their mortgage payments; a problem that is still with us.  So, we now have a paperwork snarl where, I'm sure, the banks are trying desperately to gain possession of the documents so they can proceed with foreclosure against any delinquent mortgagees.  When that happens, I'm quite sure that all those pent up foreclosures will hit like a roaring storm; with unsold inventories rising and prices falling again.

Velshi and a lot of analysts should have seriously questioned why housing statistics were improving while the economy and unemployment were in the process of worsening.  It didn't make sense and those improvements should have come into question.  But, all too often, people put their political ideology ahead of logic.

Data Sources:

June New Home Sales: http://www.cnbc.com/id/48318563

June Existing Home Sales: http://abcnews.go.com/blogs/business/2012/07/u-s-existing-home-sales-decline-in-june/

Impact of the Robo-Signing Scandal  on the Rate of Foreclosures: http://in.reuters.com/article/2012/06/27/us-usa-housing-nevada-idINBRE85Q05520120627