The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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To: tejek who wrote (264043)	7/26/2010 4:03:00 PM
From: RetiredNow	Read Replies (1) of 306849

tejek, for an unbiased look at what the new-home sales number really means, take a look at what Barry Ritholtz has to say. This continues to be a paper house that the Fed and our government has been building. The least spark will see it burned to the ground in milliseconds. New Homes Sales: Mostly Noise, Little Signal ritholtz.com Last month, when new home sales fell 33%, I warned investors that “This data series is notoriously noisy, and you are must better off using a 3 month moving average than reading too much into any single month.” This month, we see that New Home sales jumped 24%. The same caveat applies: Ignore the swings, look at the moving average to smooth out the volatility. In fact, the series is so noisy that way back in 2005, we had to do a study to figure out what to make of it. Our conclusion? “Looking back over the past 15 years of data, we see that a mean regression has followed nearly all double digit monthly gains. The subsequent month’s data was significantly lowered — flat to negative in nearly every case.” I have yet to do study on the negative double digit months, but I have a suspicion it would be the same. Bottom line: Anytime you see a big gain or drop in this data series, you should expect a reversal the following month.

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