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Beating the housing dead horse



March 26, 2009 – Comments (2) | RELATED TICKERS: BBY


I apologize in advance because someone must have mentioned this by now, but after scrolling through the list of recent posts I could not find any on the subject so I figured what the heck I'll write a quick not on the subject of yesterday's home sales figures. 

Some people in the media, and even some analysts cited the increase in U.S. home sales from January to February as a piece of positive news.  Headlines which highlighted this incremental improvement, like this one from Bloomberg: Home Sales in U.S. Rose 4.7%..., were all over the place yesterday.

As much as it pains me to say this as a homeowner, contrary to the headlines new home sales were absolutely terrible last month.  The Big Picture blog has been all over this story.  Sure, home sales rose in February versus January, but THEY ALWAYS DO, year, after year, after year.  That's just how the market for new homes works.  The more important figure here is the year-over-year comparison, which eliminates the monthly variation.  Y-O-Y sales of homes in the U.S. were down 41%.

Not only were the Y-O-Y numbers terrible, but look at the margin for error that the Census Bureau lists next to the supposed 4% rise in M-O-M sales... + or - 18.3%.  Are you kidding me?  What in the heck kind of analysis is that.  I can picture myself back in school a hundred years ago..."Hey Dad, I did pretty well on that test.  I got an 85 (whispering under my breath + or - 18%)."  That has to be the worst built-in margin for error that I have ever seen.  Why even issue a report if you can't come within 20% of what the actual number might have been.  Good grief.

Oh by the way, home prices fell 18% Y-O-Y.  I don't know when the drop in home prices will end, but I would not be surprised in the least if we had another 20% to go.

OK, I promised that I would keep the housing stuff short, so I'll stop here.  One other piece of news that everyone is cheering about today has caught my eye as well.  The Best Buy results.  BBY was off to the races this morning on the heels of a nice earnings beat. 

From an economic perspective, the thing that I find interesting about BBY's results are its same-store sales figures.  For Q4 BBY's same-store sales dropped 4.9%.  Things were a little better at BBY in Jan. and Feb. when same-store sales were down only 2.5%.  Still that's nothing to write home about, especially after taking into account that Best Buy's main rival, Circuit City went bankrupt. 

For all of 2009 Best Buy expects its same-store sales to be flat to down as much as 5%.  Sure BBY management might be aiming low, but this forecast supports my theory that the economy is going to muddle along the bottom for a long time.  I'm not nearly as bearish as many CAPS members who see the current events as the beginning of the end of the world, but I do not expect to see a return to growth for a looong time.  I think that the U.S. economy will not recover quickly, but rather will flop around on the bottom like a fish out of water for a period of several years (aka an "L" shape).


2 Comments – Post Your Own

#1) On March 26, 2009 at 9:51 PM, DemonDoug (31.22) wrote:

deej, the only thing that i don't like about the "L-shaped" recovery prediction is that our economy is sickeningly volatile.  It will be sharp ups and downs for a while, hard to know where the absolute bottom is, I'm thinking maybe even as soon as next year, but could be as late as 2015.

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#2) On March 27, 2009 at 6:02 AM, TMFDeej (97.71) wrote:

Excellent point, Doug.  With the markets, I expect to continue to see wild swings on the up side and the down side.  I just believe that in the end they'll average out to a whole lot of nothing.  It's a lot more diffifuclt for the country's GDP to have wild swings though.


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