by Dave Kranzler, Investment Research Dynamics:
The Seasonally Adjusted Annualized Rate (SAAR) economic numbers are now manipulated beyond the definitional meaning of the word “absurd.” This is especially true with the housing market and auto sales reports. – Investment Research Dynamics
Today the NAR released its “pending home sales” index. On a “seasonally adjusted annualized rate” basis, it showed 1.3% gain over June. June’s original report was revised lower from +.8% to -.2%. Mathematically, this downward revision enabled the National Association of Realtors to report a gain from June to July. Keep in mind this is on a “seasonally adjusted” and “annualized rate” basis.
Now for the real story – at least as real as the reliability of the NAR’s data sampling Untitledtechniques. In the same report the NAR shows the “not seasonal adjusted” numbers. (click on image to enlarge) On a year over year basis for July, pending home sales were down 2.2%. They were down 13% from June. This is significant for two reasons. Using a year to year comparison for July removes seasonality and it removes the “seasonal adjustments.” Just as important, if you look at historical data for existing home sales by month, “seasonality” between June and July is non-existent – i.e. in some years June sales exceed July and in other years July exceeds June.
The not seasonally adjusted data series is much more reflective of the real trend in the housing market that has developed this summer than is the manipulated SAAR number vomited by the NAR’s data manipulators. The 13% from June to July should shock the hell out of housing market perma-bulls.
FURTHERMORE, the not seasonally adjusted numbers are consistent with the highly correlated mortgage purchase applications data. “Pending” sales are based contracts signed. Concomitantly with signing a contract – the NAR reported that 80% of all existing home buyers in July used a mortgage – the buyer needs to file a purchase application. But the Mortgage Bankers Association reported that mortgage purchase applications hit a 6-month low in July. The mortgage applications data contradicts the NAR’s pending home sales report on a SAAR basis but is entirely consistent with the pattern in the not seasonally adjusted data.
The not seasonally adjusted data are pointing to a rapidly developing housing market implosion – 13% drop in contracts signed from June to July in a two-month period that has little if any seasonality and with 30-yr fixed mortgage rates hitting all-time lows.
Just like the big bubble which finally exploded in 2007-2008, I was early in my call on Housing Bubble 2.0 (HB 2.0). Because it takes a lot of capital and “inertia” to move the housing market, directional movements take time to develop and they become fast-moving trains with no brakes – until they either hit a wall or hit the ground. But change in direction happens suddenly.
When prices are moving up, the market becomes very illiquid on the “offered’ side and buyers become ravenous. This occurred because the Fed dedicated $2 trillion of it’s QE to the mortgage market and the Government made Government-guaranteed mortgages much easier for buyers by taking the down payment requirement down to 3% and in some cases 0%. But when the market rolls over, supply quickly builds and demand disappears and the market becomes very illiquid on the “bid” side. The market is about to become very illiquid on the buyer side of the equation.
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