Monday, July 27, 2009

Figures don't lie, but the media sure do mislead

The home builder stocks jumped today. Why? Because of these headlines:I don't get it. Who's cheering up the headlines? Somebody is and it wasn't the Census Bureau. Their news release simply says:
Sales of new one-family houses in June 2009 were at a seasonally adjusted annual rate of 384,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 11.0 percent above the revised May rate of 346,000, but is 21.3 percent below the June 2008 estimate of 488,000.
The Wall Street Journal had one article with a more cautious observation, but perhaps too cautious:
Many investors celebrated Monday after June's "surge" in U.S. new-home sales. Alas, it was largely wishful thinking. True, the Census Bureau reported sales up 11% from May. That's a big number, at first glance justifying Monday's 4.5% leap in the Dow Jones U.S. Home Construction Index. But it fails a close inspection.

First, home sales quite often jump in June, the height of the spring selling season. When trying to gauge the strength of home sales, then, it makes more sense to compare them to the same month a year ago. That comparison is less kind -- sales were down 21.3% from June of 2008. Seasonally unadjusted data show a total of 36,000 new homes were sold last month, the lowest June total since 1982, notes Richard Moody, chief economist at Forward Capital.
My question is: Do most casual investors just read the headlines and think things are looking up? I guess if you glance at the Washington Post headline you'd really think new home sales "surged" in June as opposed to down 21% over a year ago.

If you did your homework, you'd know that the May 2009 sales of new one-family houses was down 32.8% from May 2008. So the June news is good. But not good enough to run out and buy shares in a home builder. Maybe next month or August if the trend continues.

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