By Lee Adler, The Wall Street Examiner:
There’s been a lot of talk over the past year about the housing “recovery.” But the fact of the matter is that in terms of new single-family homes, there’s no genuine recovery, but there’s certainly a bubble in prices.
New home sales reported by the Commerce Department this morning came in with a headline number of 394,000 versus the consensus of economists’ guesses of 475,000. As a result of the huge miss, the market was shocked, not by the incompetence of economic forecasters, but by the news release itself. Apparently most investors still believe that economists have a clue, which is unfortunate. As a result of the surprise. Treasury yields cratered, with the 10 year yield dropping from 2.91 just before the announcement to 2.83 45 minutes later. As bonds rallied sharply, stocks began to rally as well. We’re back to the idea that bad news is good because it means maybe the Fed won’t cut the market’s heroin.
The actual numbers (not seasonally adjusted) behind the seasonally adjusted headline number showed that the drop in sales last month was larger than typical for July, so to that extent, the big miss in the headline number wasn’t all that misleading. The average monthly decline for July over the previous 10 years is 6%. Last year the drop was just 2.9%. This year, July saw a drop of 18.6%. It was the biggest July drop of the past 11 years. Buyers apparently stopped buying after mortgage rates surged.