Last part of this story has interesting comments from builders about their business.
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Deconstructing Housing
Sales Data Send Mixed Signals on Market's Future
By Daniela Deane
Washington Post Staff Writer
Thursday, February 28, 2002; Page E01
Home sales are way down -- or maybe they're way up.
Yesterday, the Commerce Department reported that sales of new houses in January plunged to their lowest level in a year and half. Because new-home sales are a leading indicator of where the country's housing market is headed, that seems like a warning that housing is beginning to feel the effects of recession.
Just two days earlier, however, another report said that sales of existing homes -- the overwhelming majority of U.S. house sales -- were the strongest ever in January. That seems to indicate that the country's housing market is still pretty darn healthy.
What's going on?
"The existing-home sale numbers give us some confidence and encouragement, while the new-home sales numbers give us a warning," said Michael Carliner, senior economist at the National Association of Homebuilders.
The robust housing market has been an important prop for the rest of the economy in recent months not only because construction provides jobs, but also because home buyers spend billions on renovations, furniture and items for their new nests.
The Commerce Department said yesterday that new-home sales in January fell to an annual rate of 823,000 units, a 14.8 percent drop from the December rate and below analysts' predictions. In contrast, the National Association of Realtors reported Monday that existing homes sold at an annual pace of 6.04 million units in January, a 16.2 percent increase from December.
A few factors, some of them technical, are creating this contradiction, according to economists.
First, there's a time lag between the two sets of data. Existing-home sale numbers are based on settlements or closings on properties, while new-home sale numbers are based on contracts signed -- that is, future closings. Because of the difference, existing-home sales figures tend to lag one or two months behind new-home sales numbers.
Does that mean the housing market will fall apart in the next month or two?
Probably not.
"These numbers are an indication that as we get further into this year, there will be some softening in housing," said David Lereah, the Realtors' chief economist. "We can't sustain record levels of sales with the economic slowdown we're having. But housing will still remain healthy."
Then, too, the figures could be just plain wrong.
In releasing yesterday's numbers, the government pointed out that the new-home sale figures could be off by as much as 12 percentage points either way when revised. That large a change could mean that new-home sales figures are down only a few percentage points from the December rate.
"These numbers may very well be revised upwards," said Lereah. "They're a much more volatile time series than existing-home sales." New-home sale figures, like many economic statistics, are based on incomplete data because information is collected after the first results are published. Existing-home sale figures, which are based on actual closings, tend to stay about the same even with revisions.
Unless, that is, the National Association of Realtors switches software. Last year, the group issued January existing-home sale numbers that showed sales down sharply. Later, they admitted the number was wrong; sales actually rose.
Economists also insist that one month does not a trend make.
"You've got to look at data over several months to establish a trend," said Lawrence Yun, senior economist at the National Association of Realtors. "There's always volatility in month-to-month data."
Said Sung Won Sohn, chief economist at Wells Fargo & Co., a major mortgage lender: "I don't think this dramatic decline is a new trend. I see it as more of an aberration."
Sohn and other economists also predict that the two sets of sales figures will start converging as early as next month, with new-home sales rising as existing-home sales fall.
In addition to data gobbledygook, though, there could also be reasons for the new-home sales decline to which non-economists can relate.
"New homes cost more per square foot than old homes do," said Sohn. "So people are turning more to used homes. In a slowing economy, people generally tend to go for more value, which tends to be used homes."
New homes tend to attract wealthier buyers, which could also be a factor.
"In January, the stock market generally declined," said economist Yun. "Stock market declines tend to shake up the higher-income group more."
Builders say they aren't fazed by the figures.
"They're on another planet," Bob Toll, chief executive of Toll Brothers Inc., the country's largest luxury home builder, said of the Commerce Department statisticians. "Our sales are absolutely fabulous. We've seen a pickup, not a slowdown."
Toll said, "I have no explanation for these numbers." He said he had dinner this week in New York with several large national builders who all reported similarly brisk business.
Ian McCarthy, CEO of Beazer Homes, another national builder, said January sales at his company were up 7 percent over January 2001.
"The mood is good and the buyers are still there in the markets we service," McCarthy said. "All the large builders I know feel very positive."
McCarthy pointed out, though, that the country's smaller builders, many of whom are being bought out by the larger builders, might be seeing slower sales.
"There is a consolidation issue here," McCarthy said. "Larger builders have taken more market share. Our figures may be stronger because we have more opportunities to buy land, more outlets compared to smaller builders."
© 2002 The Washington Post Company |
