Is housing worse than the numbers show?

Today’s statistics for new homes sales—up 16% on a seasonally adjusted basis—looked surprisingly good. Too good, I suspect, for one long-term housing market observer, consultant John Burns, who even before today’s report had been warning his clients for more than a year about distortions in the data for new and existing home sales, which he believes is lulling policymakers into believing that the housing downturn has been relatively modest and no cause for alarm.

Burns raises a host of questions that he says conflict with the official sales data. For one, He says his firm purchases and compiles home closing data for 181 key counties in the U.S. where 55% of the population lives, and his data shows that sales have fallen 22% over the past 12 months over the prior 12-month period. He also notes that the Mortgage Bankers Association’s purchase application index – in effect, a measure of the number of people filling out loan applications – is down 18% from its 2005 peak. His question: How could sales have fallen by less than 18%?

Burns also points out that the nation’s two largest homebuilders, D.R. Horton and Lennar are reporting that orders have declined 27% to 37%, year over year – again, far less than the official numbers. And they both have dropped prices significantly in many markets to generate sales, while the resale market hasn’t. Why not?

Thought provoking. For Burns’ full analysis, click here.

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