What is really behind those statistics? Always Read the Fine Print.

Last week we talked about new home and apartment construction and how they rebounded in February after a slide in January. This week the census Bureau released a report on New Residential Sales. Already the results are all over the news that New Home Sales Fell Sharply, New Home Sales Fall for Second Consecutive Month, Stocks are Falling Based on Housing Jitters, etc.

The news articles state that sales of new homes in February were at a seasonally adjusted annual rate of 848,000, 3.9% below the revised January rate of 882,000 and 18.3% below the February 2006 estimate of 1,038,000. At first glance, this certainly does not look good. But is the housing market really that bad?

If you read the report itself, it states that the drop from January to February was 3.9% (+/-17.4%). According to the fine print, that means that the actually change was anywhere from -21.3% to +13.5%, with a 90% confidence level. In other words, the drop could be even more dramatic - as low as 21.3%, or, sales might have actually increased as much as 13.5%, or they might not have even changed at all. The fine print then goes on to say that if the range does contain zero, which this one does, it is not statistically significant. This initial data is subject to revision due to the survey methodology used and the definitions. For example, a sale is considered a sale when a deposit is taken or a sales agreement is signed, not just when the actual deal is finalized. Additionally, season data like this can be very irregular. It can take as long as 6 months to establish a new trend.

This is just a great reminder of how you have to look past the headlines to see what is really being reported. The news likes to sensationalize. They report doom and gloom. If you really rely on the information, it is best to go to the source and look at the data yourself.

Cheers,
Richard Lazovick and the MortgagePro News Team