RealMoney Extra: Be Cautious With Builders
Unfortunately, those cheery views all turned out to be incorrect.
Why? It turns out that home purchases are very seasonal. There is a very well- defined pattern of sales from month to month over the course of a year. Reporting sales changes from January to February was actually measuring these seasonal differences. It was not, unfortunately, showing actual improvements in the housing sector.
Of course, you would never report retail sales from December to January this way; otherwise each and every year, we would have headlines screaming RETAIL SALES FALL 65%.
We know this to be the case because of two reasons. First, we can eliminate the seasonal variations by measuring the year-over-year sales changes. Second, we can look at the average monthly non-seasonally-adjusted sales data for the past few years to discern the basic calendar pattern.How did existing-home sales do in February based on the year-over-year data? Not particularly well: Single-family home sales in February 2008 were 23.8% below February 2007 levels. That doesn't sound very much like signs of stability of strength to me. The national median sales price was also a big surprise, dropping 8.2%. Those two data points reflect a very unhealthy housing market. However, rather than obsess over one month's reading, why don't we look back at the average monthly sales data, non-seasonally-adjusted, for each month. When we remove the seasonality factor, we learn quite a bit about home sales. Not surprisingly, it turns out January is the slowest month of the year when it comes to home sales. That intuitively makes sense, as most people are otherwise engaged in December -- they are busy with holidays and vacations. Many fewer people are shopping for homes then, so we get fewer contracts signed in January.
|Source: Calculated Risk, NAR|
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV