The housing market is nothing if not confusing. After yesterday's news, which seems to indicate a slowdown in the market, we get today's headlines. And these will be: "Home Sales Up."
Down? Up? Which is it?
That may be impossible to answer. Here's why.
Yesterday's numbers concerned existing home sales, come from the National Association of Realtors, and are based on contract closings on existing home sales -- a pretty large number. As such, we might be pretty confident in them.
Today's numbers, however, concern new-home sales, and they are based on surveys at the Census Bureau. They're keyed off reported contract signings. There are nowhere near as many of these, and they're also subject to a pretty wide range of sampling and other errors and biases. We'll get to the fallout from that in a moment.
For now, the numbers: The figures report a "seasonally adjusted annual rate" of 1.424 million homes. That's 13% more than September, or 9% more than October a year ago.
Does that mean yesterday's numbers are old news? That we should all go out and bet our money on shares of homebuilders like Centex
Not so fast. Check out the fine print on the commerce department's report -- something the headline writers out there will never do. If you look past the breezy conclusions in the media, you'll find out just how reliable these latest data are.
Which is to say, they aren't reliable at all. The reality is this. The monthly sequential sales number is a 13% "increase" subject to a margin of error of plus or minus 17.7%. The year-over-year "increase" of 9% is subject to a margin of error of plus or minus 18.2%.
That means that it's not proper to call these "increases" at all. They could, in fact, be decreases. (Alternatively, they could be much larger increases.)
It's incredible to me (or is that appalling?) that anyone might make a major financial decision, like a stock investment or home purchase, under the influence of such ambiguous figures. What's worse is that the news sources out there can't even be bothered to explain that they are ambiguous. But then, news editors are often loath to let reality and its pesky details get in the way of a story. "The answer is unclear" just doesn't fly.
As in all things financial, Fool, you're better off being skeptical of even the most basic "facts" out there.
For related Foolishness:
- H stands for both Housing and Hiss.
- The housing experts change their tune.
- Home prices help the California Dream go bad.
- Look behind the housing bubble babble.
- Bubble? You bet. But only Fools seemed concerned.
Need assistance doing the math on a home buy ... or not? Our Home Center can help you make the decision.
Seth Jayson remembers his statistics classes with fondness and remembers newsroom editors who ignored margins of error with something more like contempt. At the time of publication, he had no positions in any company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.
