Subscribers' Report on the Housing Market!

Data and associated graph from the New Houses Sold, by Sales Price report from the U.S. Census Bureau (broken out by quarters - totals have been rounded) (uses non-seasonally adjusted figures) (Some figures are preliminary and most figures are revised by Commerce in the months following the initial report) Data obtained from sources believed to be reliable but is not guaranteed. [Thousands of houses. Components may not add to total because of rounding.]

Our Analysis:

7/27/2010 Update:

Data reflects new home sales data only from the U.S. Department of Commerce.

Median sales price in June was $213,400, up significantly from the prior month.

We previously commented that the January numbers would likely disappoint and we would hear news agencies screaming about how horrible the housing market was going to be again this year. ABC News posted this report:

' Sales of new homes plunged to a record low in January, underscoring the formidable challenges facing the housing industry as it tries to recover from the worst slump in decades.'

They went on to say that the news was a "big surprise" to economists who were expecting an increase. Guess one of those surprised economists should subscribe to these reports!

Recently we said,

"December and January are clearly shaping up to be potential points of inflection within the marketplace. Those final December numbers and some initial numbers for January will be needed for further analysis. Additionally we need to see how this extended artificiality affects the marketplace further, now that it has been extended. Having said all that, and with so many exciting possibilities currently developing, we believe that January may well disappoint most home watchers and reignite talks of another bad year for housing in 2010. We further believe that this anomaly, should it develop, will likely be an aberration and that the March, April and May period may then turn out to be stronger than the new lessened expectations. 2010 as a whole will be extremely difficult to call as we see these artificial factors work their way through the marketplace.

While we are quite content that the initial January numbers played out exactly as we predicted, and that the news media responded exactly as we predicted, we ourselves have become more cautious as well. We think the media will continue to overstate the negatives for awhile, but we also do not expect the extended first time homebuyers credit to impact the marketplace as significantly as it did in the fourth quarter of last year.

Overall the housing market may struggle to move higher in terms of units sold - but at the expense of home prices, which, while showing pockets of stabilization, are likely to be under continued pressure from record foreclosures. "

After its dismal January report, ABC News has now released this much more upbeat report which says in part, " New home sales jumped 27 percent in March, the biggest monthly increase in 47 years. In some regions of the country, the growth was even more pronounced, with a 44 percent increase in sales in the South and a 36 percent increase in the Northeast. "

To truly appreciate this phenomenon you have to remember that we predicted a horrible January long before those numbers came out. But what is really amazing is that even before we were proved correct on our dismal January numbers, we also predicted that the March numbers (Yes, we called the exact month!) would be better than expected. So even before the bottom was in, we were not only predicting recovery while everyone else was jumping off a cliff, but we actually predicted the month of the surprising recovery as well!

But we were actually wrong about one thing. It is true - even though the word 'wrong' has rarely been in our vocabulary over the past several years, we did say that it was possible that the new home sales credit could be extended again simply due to the dismal January numbers that we believed would be reported soon. Even though the numbers were horrible and the media did overplay it - just as we predicted - the new home buyers credit was not extended. It hurts to be wrong.

Second quarter numbers should be interesting to say the least. Currently we are on track to see some continued strength in the housing market. But keep in mind that as continued strength is reported upon by the media, expectations for continued strength will grow. But expectations have nothing to do with reality. So if expectations are raised too high, then even increased sales could be seen as a disappointment. We certainly don't think that is very likely to happen before the second half of this year - if it is to happen at all - but each and every monthly report must be weighed against media expectations if one intends to stay ahead of the game.

On June 2nd NAR reported that its Pending Home Sales Index rose for the third consecutive month - surprising many.

The current track seems positive with only one 'glitch' that we have mentioned several times. The new home buyers credit is expiring and, according to Adam Smith of whom we have great respect, any artificial force in the marketplace must have an opposing effect that plays out over time. This means, quite simply, that the sales that occurred as a result of the home buyers credit will now have a negative effect on the marketplace. But to the extent that this negative effect can be countered by increasing strength in the marketplace, it may turn out to be only a minor annoyance for a month or two.

The first minor annoyance is in place - though the media is again screaming about double dips and horrible housing news. The preliminary (and yet to be revised) numbers for the second quarter are in and are lower than the year ago numbers. The third quarter numbers now become incredibly important - will we continue to suffer negative effects from the expired tax incentives or has that already worked its way through the markets?

2010 should be a very interesting year for housing and, as a subscriber, you will continue to get our insight and if we prove to be as accurate in 2010 as we have been over the past couple years then it will be like reading tomorrow's newspaper today! Stay tuned...

The next report is scheduled for release on or around Wednesday August 25th, 2010.

We utilized a proprietary Data Choices algorithm to analyze this data. We are ignoring existing home sales for this report.