In this morning’s note to clients David Rosenberg points out that home prices are beginning to roll over again, despite what the mainstream media reports.  The weakness in today’s new homes sales shows that Rosenberg is on to something here.  The housing market is much weaker than most would have you believe:

“The Case-Shiller home price index was reported to have risen in December by
0.3% MoM for both the 10 and 20-city measures.  But this only occurred after
seasonal adjustment was applied to the data — the raw numbers actually show
that both house price measures fell 0.2% on the month.

Now, December does tend to be a slow month for the housing sector for obvious reasons, but there were plenty of times before the housing bubble burst that prices rose in December: 2005, 2004, 2003, and 2002; not to mention 1999, 1998 and 1997.  However, the experience of the past three Decembers as the bubble kept bursting, was awful — unheard-of declines of over 2% in 2007 and 2008 and it is this most recent performance that influences the current seasonal-adjustment process the most.

So, it could well be that the +0.5% boost to the monthly data from the seasonal adjustment factor (going from  -0.2% on the raw data to +0.3% on the seasonally-smoothed number) could be a tad aggressive.  (Also keep in mind that the massive pipeline in foreclosed properties that are sitting in shadow inventory is having a skewing effect because the shift in the mix away from foreclosed homes does tend to push up average prices, which, by the way, is why cities like L.A., Phoenix and San Diego posted the largest price gains in December.)”

Source: Gluskin Sheff

Cullen Roche

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