Tuesday, June 16, 2009

Cramer Gets Confused on Housing

by Bill McBride on 6/16/2009 07:04:00 PM

NOTE: I'm not just picking on Cramer. I'm trying to emphasize two key points: 1) there will be two bottoms for housing, and 2) the median price is useless with a changing mix.

I've cautioned that people would make the following analysis errors ...

From CNBC: Cramer: Housing Has Officially Bottomed

Residential real estate has finally found a floor, Cramer told viewers on Tuesday.
...
How can Cramer be so sure? New housing data reported today showed a dramatic change for the better, especially in some of the hardest-hit areas in the US. That news, along with much lower prices and the working off of inventory, validate his prediction, made last August, that housing would stabilize this month, ending its multiyear declines.
...
What does a bottom look like? It’s the combination of ramping sales, and sales in certain areas are up ten times those of last year, and an end to falling prices. That’s exactly what we’ve seen for the past three months, Cramer said.
First, for almost every housing bust there have been two distinct bottoms: the first for activity (like housing starts) and the second for prices. Maybe this time is different, but I think Cramer is confusing activity for price.

For more on the two bottoms, see: More on Housing Bottoms

On price, Cramer is probably looking at the median sales price from the National Association of Realtors. This shows that the median price has flattened over the last four months. But the median price has been heavily distorted by foreclosure sales in low end areas. A much better measure of price is the Case-Shiller index, and that shows prices fell at a 25% annual rate in Q1 nationally on a seasonally adjusted basis.

It was predictable that some people would confuse activity with price (remember there will probably be two bottoms). And it was predictable that some people would get confused when the median price started to flatten out (as the mix slowly changed) even though prices are still falling.