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More Fuzzy Reporting: New Home Sales Misrepresented

Wednesday, March 25, 2009, 12:47 PM

If you read my recent blog post on existing home sales, you may experience déjà vu reading this one. My point in exposing the ways in which “news” is spun to the positive, instead of realistically, is to help you see the ways in which we are still being systematically misled. I consider this to be important to reveal because while problems are still being identified, realism is more important than optimism.

Would you tell an overweight man with chest pains that “it’s probably heartburn and that most people are just fine after experiencing chest pains” or would you advise them to obtain a careful examination of their condition?

Here, we are going to give the patient a close examination.

As I am typing this, the stock market is rallying as it basks in some very favorable news on New Home Sales. Here’s the news:

New home sales in surprise rebound

NEW YORK (CNNMoney.com) -- Sales of newly constructed homes unexpectedly rose in February, rebounding nearly 5% after sinking to the lowest level on record in January, according to a government report released Wednesday.

Once again, we’ll examine this “unexpectedly” claim by using another excellent chart from Calculated Risk (I love that site!). This time, again, we will note that New Home sales nearly always rise in February as compared to January.

New_home_sales_II.jpg

See those purple lines? Nearly every one of them slopes upwards from left to right. Six out of seven of them. And even the 2006 number might be a bit off because it looks like some of the February activity might have slipped into March. [Edited by CHM at 2:00 3/25/09 to reflect my oversight of the 2006 purple bar]

This means that February quite ordinarily and usually has greater home sales than January. Just like we discussed before.

We might also note that this February is waaaaaaaaayyyyyy below any prior February. Further, from a second chart at Calculated Risk we can observe that this February’s New Home sales is the lowest ever recorded since records started being kept in 1963.

New_home_sales_Two.jpg

Yet here’s how this information was summarized in the CNN.Money article linked to above:

Wednesday's report was the latest in a series of better-than-expected readings on the housing market.

So is this news really “better than expected” or is it the “worst new home sales data on record”?

Before you answer, I want you to consider the source of the data itself. The Census Bureau collects the new home sales data but they are notorious for two practices. The first is that they DO NOT subtract cancellations from the data series. That is, they count as “sales” any and all contracts signed to buy a new house. Many of those, recently 30% to 50% depending on the builder and region, are canceled prior to completion and are not actually sold.

The second is that their “sampling methodology” is so error prone that they have to put a very wide range on their pronouncement. Where you read in the news “4.7% gain!!!here’s the reality:

Sales of new one-family houses in February 2009 were at a seasonally adjusted annual rate of 337,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.7 percent (±18.3%)* above the revised January rate of 322,000, but is 41.1 percent (±7.9%) below the February 2008 estimate of 572,000.

The margin of error, meaning that the Census Bureau is only 90% sure that the reported figure lies somewhere within this range, is plus or minus eighteen point three percent.

This means it could have been a minus 13.6% drop or it could have been a 23% gain. With a range this wide, we might wonder how much weight we should individually give to the reported number at all.

Certainly I would personally never report something as 4.7%, implying precision to the first decimal position to the right, when I was only 90% sure that I was accurate two full spots to the left of the decimal point.

Once again, I must regretfully conclude that the same sort of accounting shenanigans that I have been consistently decrying over the past 5 years are alive and well and on full display down there in DC even today.

While I am an optimistic person for a lot of reasons, I do not share an affinity for false optimism based on Fuzzy Numbers that so many in DC and the mainstream press seem to cling to.

I prefer a blend of realism and optimism that come together around a true understanding of the problems as they are actually configured, not as we might wish them to be. If the patient is sick, let's find out why and not delude ourselves.

File these New Home Sales articles as just more Jiminy Cricket reporting.

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16 Comments

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2490
Re: More Fuzzy Reporting: New Home Sales Misrepresented

Thank you Dr. Martenson, as usual, you are really on top of the situation.

Do you think that the reason that the news is "good" is because of the rally in the stock market? Common sense seems to suggest that the market reacts to news and not the other way around, but if you really take the time to analyze it (which you do), it appears that the market moves of its own accord and the content of the news reacts (or conforms) to it. 

I also wanted to ask about your recent reply to Erik in which you stated you were considering selling some gold and buying some land. I think you implied that your reason for doing this was more for personal reasons, but I wanted to make sure that it wasn't because you were starting to doubt the ability of gold to protect your wealth (due to Fed/Government intervention).

Thank you for your time, and I am very grateful for your guidance through these uncertain times.

 Jeff

coolhandluke's picture
coolhandluke
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Re: More Fuzzy Reporting: New Home Sales Misrepresented

There is no purple bar for 2006?  Any particular reason?  Thanks in advance.

Lucas

DrKrbyLuv's picture
DrKrbyLuv
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Re: More Fuzzy Reporting: New Home Sales Misrepresented

Chris - thanks for the heads-up.

The government and media are far too comfortable giving us "fuzzy numbers" to manipulate and steer public and market perceptions.  Media in the western world is largely owned by 10 mega-corporations.  By media I mean TV, radio, movies, music, cable, satellite broadcast, magazines and a growing list of newspapers.

The government paves the way for the powerful conglomerates to grow their monopolies in exchange for bribes (often called campaign contributions) and favorable coverage.  We end up with an homogenized message through most of our imaginary content. It's a nightmare marriage of Madison Avenue and Wall Street.

Larry

mainecooncat's picture
mainecooncat
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Re: More Fuzzy Reporting: New Home Sales Misrepresented

coolhandluke wrote:

There is no purple bar for 2006?  Any particular reason?  Thanks in advance.

Well, it looks like it was left out perhaps because it was counter to the trend in that it would have sloped downward to the right, though only ever so slightly -- six out of seven it still trend-worthy however.

It's interesting, I was building a house in the fall of '05 into '06 and, as I remember, that was a particularly orgiastic time for residential home-building -- at least where I am in New England -- so much so that it may have caused an anomaly in the larger, macro-trends of regular February upticks.

coolhandluke's picture
coolhandluke
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Re: More Fuzzy Reporting: New Home Sales Misrepresented

I understand the trend, just curious if it was omitted on purpose.

Lucas

Erik T.'s picture
Erik T.
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Re: More Fuzzy Reporting: New Home Sales Misrepresented

I can just see it now... The MSM finally picks up on Chris Martenson...

Quote:

Blogger Chris Martenson reported to his readers today that home sales always go up in February, citing data back to 1963. Martenson's data also reveal that further strength in housing should be expected in March, clearly indicating that the economy is in recovery.

Hey, there's still good news in all this. I hear Burt Rutan is accelerating his plans to colonize space...

Erik

Jarhett's picture
Jarhett
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Posts: 132
Re: More Fuzzy Reporting: New Home Sales Misrepresented

Hmmm... let me guess this applies to durable goods as well

Demand for durable goods jumps 3.4% in February

First gain after six monthly declines surprises economists

A. M.'s picture
A. M.
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Posts: 2311
Re: More Fuzzy Reporting: New Home Sales Misrepresented

Erik,

Quote:
Hey, there's still good news in all this. I hear Burt Rutan is accelerating his plans to colonize space...

Reaaaaaaally....

That's interesting. Have a link?

Cheers!

Aaron

castlewp's picture
castlewp
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Posts: 304
Re: More Fuzzy Reporting: New Home Sales Misrepresented

 

http://www.chartingstocks.net/2009/03/durable-goods-figures-were-not-good-even-if-the-media-wants-them-to-be/
 

Durable Goods Figures Were NOT Good; Even if the Media Wants Them to be

Wednesday, March 25, 2009 11:17

Posted in category Economy, Media

The DJIA futures were set for a higher open this morning as orders for durable goods unexpectedly “jumped”  in February, which “surprised” many economists. Well,  at least that was the headline on  the major financial news sites but if we look at the data for ourselves, or even look past the headline and actually read some of the articles we realize that there isn’t  cause for optimism at all. The devil is in the details.

Yes, the media reporting was correct. Orders for durable goods rose 3.4% in February (According to the Commerce Dept.) but somewhere  towards the middle of each the news articles we learn that THE GOVERNMENT REVISED DOWN JANUARY’S  NUMBERS TO - 7.3% FROM A PREVIOUSLY ESTIMATED - 4.5%.  [Please excuse the shouting]. This Newsweek article casually makes mention of this in the last paragraph of the page.

The mainstream  fails to emphasize that almost half of February’s increase was defense spending. In fact, defense spending jumped 35% from the previous month! Orders for non-defense capital goods, though rising 6.6% in February, was revised down to  - 11.3% in January which was TWICE as bad as previously reported.

SteveS's picture
SteveS
Status: Gold Member (Offline)
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Re: More Fuzzy Reporting: New Home Sales Misrepresented

Ok, I haven't has statistics in an awfully long time, but it seems that opinion polls are accurate to what, like +/-4% on a sampling of a couple thousand people or so out of 300 million. So how do manage to get statistics that poor on something that should be hard numbers? And on sales of about 20,000? They must  call one realtor and ask, "sell anything this month?" and extrapolate from there! And this is what the market is swinging on.....

phredd's picture
phredd
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Posts: 16
Re: More Fuzzy Reporting: New Home Sales Misrepresented

cmartenson wrote:
So is this news really “better than expected” or is it the “worst new home sales data on record”?

It is logically consistent to be both better than expected and still the worst February on record.  Your choice of phrasing, depending upon what you want to emphasize.  On the other hand:

cmartenson wrote:
With a range this wide, we might wonder how much weight we should individually give to the reported number at all.

According to the census report itself, the answer to your wondering is "no weight at all".  The report itself says this very clearly in the phrase asterisked.

The report directly claims:

 * 90% confidence interval includes zero. The Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero.

Normally, I am pretty forgiving of reporters who don't understand confidence intervals.  I know plenty of people out there who have no idea about statistics and assume, for example, that there is a significant difference between a hitter batting .280 and a hitter batting .270 over the course of a single season, or who completely misunderstand that an election poll of "40 points, plus or minus 3 points" is no different from an election poll of "43 points, plus or minus 2 points".  But there's no excuse for not actually reading the footnote.

 Even us liberals arts people know better than to bleep over an asterisk.

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
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Posts: 3414
Re: More Fuzzy Reporting: New Home Sales Misrepresented

Thanks Luke!

Talk about seeing what you only want to see...I completely overlooked that bar somehow....

Now edited to reflect that data point.

Ray Hewitt's picture
Ray Hewitt
Status: Gold Member (Offline)
Joined: Apr 5 2008
Posts: 458
Re: More Fuzzy Reporting: New Home Sales Misrepresented

I read somewhere that they count foreclosures as sales. Be on the lookout for that one too.

Erik T.'s picture
Erik T.
Status: Diamond Member (Offline)
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Posts: 1232
Re: More Fuzzy Reporting: New Home Sales Misrepresented

Aaron,

I've been passing time on public transit by watching the TED Talks as video podcasts, and there was a Rutan talk where he made some comments.

I'm probably guilty of some exaggeration. He did say (seriously) that they are accelerating their plans to offer a space-tourism airline, where people can go into near-orbit for $200k or something. He positioned this as "an important step toward the eventual prospect of colonization", but there was no serious suggestion that colonization was anything other than something he thought we should keep in sight on the horizon.

I definitely recommend the TED Talks video podcasts, though.

Erik

Damnthematrix's picture
Damnthematrix
Status: Diamond Member (Offline)
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Posts: 3998
and on the back of the fuzzy figures...

Last-minute rally rescues Wall Street

Posted 2 hours 56 minutes ago

Wall Street has staged a surprise rally late in the
session, as positive outcomes for home sales and orders for durable
goods managed to off-set concerns about how to pull the United States
out of recession.

Figures for February revealed new home sales rose at their fastest
pace in 10 months, while orders for long-lasting manufactured goods
increased for the first time in seven months.

Damnthematrix's picture
Damnthematrix
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 3998
and now this... from Australia!

New data sparks hopes of US economic recovery

There are signs the US economy could be steadying after months of bad news.

The US recession is the longest in 25 years, but some new data is sparking hope that the economic downturn may be easing.

Orders for US-made durable goods have recorded their first gain in six months and new home sales have risen almost 5 per cent.

The 3.4 per cent rise from January in big-ticket items like cars,
planes and appliances is the highest increase since December 2007 and
surprised analysts who had expected a 2.4 per cent decline.

In another hopeful sign, the Mortgage Bankers Association said
applications for home loans jumped 32.2 per cent on a seasonally
adjusted basis amid a rush to lock in low interest rates for home
purchases and refinancing.

US treasury secretary Tim Geithner has welcomed the data.

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