The market is none too pleased with this morning’s housing data.  On the bright side, we continue to see the trend in “better than expected” earnings.  It’s truly astonishing that investors are willing to chase stocks (AMZN for example this morning) simply because they are outperforming the estimates of a group of people (the analysts) who know far less than they’re given credit for.  We were predicting this “better than expected” rally 4 weeks ago based entirely on the fact that the analysts are behind the curve.  Yet, investors are still acting like this is some great surprise.  The impact of these analysts on price movement is truly incredible. But I digress.

The housing data was “better than expected” until you look under the hood.  Mark Hanson at Mark Hanson Advisors was kind enough to send us his thoughts:

As I put forward in yesterday morning’s note, on an NSA basis they dropped 5.2% making for the second straight monthly drop. NAR’s attempt to annualize seasonality never before seen has resulted in a headline very far off base. This just goes to show the NAR will continue to report what they need to report. The fact is, Sept NSA sales were above last year’s 438k but below last month’s 498k coming in at 472k as shown below. In addition, sales prices fell. This pulled-forward demand sets up the slow season to be one of the slowest on record.

The tax credit effectively extended the purchase season which is why sales were even this strong. But when you consider the hundreds of billions spent to prop up the housing market, which only resulted in 34k additional sales over last September (one of the worst years on record for housing) and fewer sales YoY in CA, sales were really not that great. When organic sales go away suddenly for the season, which will happen in the near-term whether the tax credit is extended or not, it sets sales and prices up for the largest swings lower we have seen since all this began two years ago.

That wasn’t the only bad news of course.  Prices continued to decline.  Econoday reports:

Now the bad news. Prices continue to tumble, down 1.4 percent in the month to a median $174,900. The year-on-year decline is however moderating from low double digits in prior months to 8.5 percent in September. Still, home values are very weak and will continue to weaken consumer confidence and spending power and will limit the ability of consumers to tap into home equity.

Housing is still the lynch pin in this economy.  If we see the housing market take a seasonal slide to the south you’re not going to want to own any reflation trade related asset.  Of course, I would never underestimate the potential for a second round of housing stimulus.  Goldman Sachs is betting on it. And that’s not a group of people you want to be betting against.  Of course, as we’ve learned over the course of the last 10 years government stimulus and interest rate tinkering isn’t the end all be all.  It is nothing more than a short-term fix.  A second round of housing stimulus would not only be another massive waste of taxpayer dollars, but would only prolong the inevitable.  Perhaps bullish in the near-term, but not a long-term fix for the real structural problems in housing.

Cullen Roche

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