The piece is entitled Believe It or Not, Existing-Home Sales Were Up in ’09. Why wouldn’t I believe it? Why wouldn’t anybody? We were supposed to have an opinion on this topic? And a wrong one?
I suppose that if you misunderstood what was meant by the term "existing-home sales," confusing it with the prices for houses, rather than simply the number of non-new houses that changed hands in 2009, you might be surprised. Through November ’09 the Case-Shiller 20 City was down a little less than 3% for the year. (December hasn’t been reported yet.) That’s a great improvement on the year before, ’08 was down more than 18%, but it’s still down. So, yes, if you thought "existing-home sales were up" meant that prices were up, your befuddlement might have caused a brief bit of erroneous optimism.
Alas, that’s not what it means. The count of houses sold is of great interest to real estate brokers, who make money on each transaction, and of almost no use to anybody else. True, there is a rough and unreliable relationship between sales volume and prices. (See chart here.) It is enough that if we had no price indexes we might use sales volume as one of our tea leaves to help us guess what was going on.
But we do have price indexes. In the past year or two the Case-Shiller indexes have been broadly adopted as the standard, something that may turn out to be one of the few lasting benefits of the Great Recession. So why would you assume that your readers were concerned about the volume of existing home sales? Could it be that you were confused about it yourself?
Were the item I am talking about from a second-tier personal finance blog it would have been unremarkable. But it appeared in Saturday’s New York Times. And it was written by none other than Floyd Norris, their chief financial correspondent. (The Times is not the Daily Show. That’s a serious title. Norris is their lead guy in explaining things financial.)
Evidence of a weak command of the material goes beyond the headline. House prices do get discussed in the article, but the data used is median sale prices. That’s an order of magnitude more useful than the number of sales, but an order of magnitude less useful than the widely available and often cited Case-Shiller numbers.
If you are not a real estate broker, but a homeowner or thoughtful observer of the economy, what you care most about is the value of houses in general. Median sale price tells you only about the relatively small slice of the housing stock that changed hands recently. (4.6 million houses were sold in ’09. There are about 76 million owner-occupied housing units overall.) If the sold houses are not a true cross-section of the overall supply of houses, and there is no reason to assume that they would be, then the changes you see in the median sale price may not reflect changes in the value of houses in general. If, for example, there were more sales amongst higher-end houses then the median sale price would rise for that reason alone, even if the values of all houses were unchanged.
And then there is this paragraph:
Sales of new homes continued to sink, even with help from a tax credit for new homebuyers. For the year, just 373,000 new single-family homes were sold, the lowest total since the government began keeping count in 1963.
I don’t want to be an alarmist, but is it possible that the Times’ chief financial correspondent thinks the much talked about credit for new homebuyers is for buyers of new homes, rather than home buying rookies? At the very least, he seems unconcerned about spreading that misapprehension to others.
The Times has been in slow decline for rather a while now, possibly dating back to whenever it started being called The Old Gray Lady. Be that as it may, this is what passes for expert commentary in what is still the most prestigious newspaper in the country, possibly most prestigious media outlet of any kind. Heaven help us.
[Photo: Luigi Novi – Nightscream]