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Saturday, August 04, 2007

National Housing Statistics, Ella Fitzgerald, and Spin


The way that national housing statistics are subject to spin reminds one of Ella Fitzgerald, specifically, one of her signature tunes, "That Old Black Magic" .

Ella would do this song with her own lyrics on the chorus. She did this with many tunes over the years, supposedly "forgetting" the real words, and "improvising" her own. One cannot help but be reminded of spinning data, or politics, when we look at Ella's version of the chorus below: (Original Lyrics: Here)
I'm in the spin,
I'm lovin' the spin I'm in
I'm lovin' that old black magic called love...
Last week we looked at national housing statistics, and things seemed rather clear in terms of the law of supply and demand. Supplies were rising, even though production was falling when compared with last year. So it was not a surprise that demand was falling to comprise a market that is soft, and favors buyers.

But What's The Spin?
Part of spinning an issue however is to focus upon certain smaller parts of it and amplify them. Last week the spin for housing was that despite falling production, rising inventories, and declining demand that prices rose, and that this was a positive sign, instead of an anomaly.

David Berson, economic commentator for FannieMae accurately explains the inconsistency of how prices can rise in that kind of supply-demand environment:
..average prices for both new and existing homes sold rose in June. But even this must be tempered by the methodology behind these price series, as changes in the mix of homes sold can move average prices significantly. That apparently is what happened in June, with tightening of subprime lending standards having a bigger impact on lower-priced rather than higher-priced houses, and therefore making it appear that average prices rose -- when it was simply a result of relatively fewer lower-priced homes sold.
And later on in his column...
In June, total single-family home sales were 5.84 million units (annualized rate), but for the first half of the year they averaged 6.26 million units. If sales over the second half of the year average what they did in June, then the total for the year would be very close to the 6.05 million units that would bring the magnitude of this downturn down to that of 1989-91. At this point, the odds of this occurring are pretty good.
The Latest Spin
Berson's remarks are in contrast to the new spin this week in some circles, where it is emphasized that the index of pending home sales rose 5% for June 2007 vs May 2007. The NAR, (just one example), opened its press release by saying that this rise "shows the market is likely to stabilize in the months ahead", and then noting without much background, that the increase was the largest since March, 2004. Sounds pretty good.

The more accurate context for us would be to note that May, 2007 was the second lowest month on record. So a 5% rise for June vs May becomes less meaningful when viewed this way. No way to go but up.

In fact, despite the rise, the June index of 102.4 is the third lowest in the last year, and, (Excel File), is anywhere from 9% to 20% below the annual average for the three previous years. It is difficult to see signs of stabilization in that light, but certain unspun truisms do seem to apply for buyers and sellers at this time.

Blanche Help Us
So what does make sense for buyers and sellers? Remembering once more that inventories are high, even when production is low, Blanche Evans of the website Realty Times has summed things up pretty well. To paraphrase:

Lots of choices for homes out there, inventories are "saturated", production is way down, not much chance of added sellers flooding the market, so buyers' selection will not improve, buyers' leverage in negotiation will not get much better than it is now, and finally that money is probably not going to get any looser. That much remains true.

So in closing, let us return to The First Lady of Song, in a live performance that positively rocks. "That Old Black Magic" (3 mins 36 seconds), wherein she "thinks" she remembers the lyrics, and then proceeds to tell us about spin....

PLEASE NOTE: Videos do disappear from the web from time to time. If this video should become unavailable, then more of Ella's performances can be found at this location.

PS: If you watched the video until the end, pretty sure this performance is not LA, 1968 as shown, but London, 1965.

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