The business press worships at the altar of seasonally adjusted data. Most journalists covering the economy don't even bother looking at raw, not seasonally adjusted data, which in layman's terms is best understood as "what actually happened." As I have shown for nearly a decade, this is often a big mistake.
On the rare occasions when reporters take the initiative to look at the raw data, they usually ignore it, or fail to grasp its meaning. A perfect example of that phenomenon occurred today at Bloomberg News. The business press is blindly accepting a reported 10.5 percent drop in existing home sales as evidence of all kinds of problems, including — supposedly, but not really — a regulation-driven extension of closing time frames. Though Bloomberg's Victoria Stilwell was astute enough to look at the underlying data, unlike her fellow reporters at the Associated Press and Reuters, she completely ignored how doing so blew up the narrative.
What Stilwell found is that sales didn't plunge at all:
Compared with a year earlier, purchases decreased 3.8 percent in November on a seasonally adjusted basis. Unadjusted, sales were unchanged. (at 351,000 units — Ed.)
What did the Bloomberg reporter do with this information? Absolutely nothing. She went with the "slumped" narrative, and bought the handy excuse provided by the chief economist at the National Association of Realtors:
Sales of Existing U.S. Homes Slump on Delayed Contract Closings
Sales of previously owned homes slumped in November to the lowest level since April of last year as a change in industry rules lengthened the amount of time it took buyers to close on a deal.
Closings on existing homes, which usually take place a month or two after a contract is signed, declined 10.5 percent to a 4.76 million annual rate after a revised 5.32 million pace in October, the National Association of Realtors said Tuesday. November sales were weaker than the most pessimistic forecast in a Bloomberg survey.
“November home sales without a doubt were heavily impacted by a new federal government rule regarding closing documents,” Lawrence Yun, NAR chief economist, said in a news conference as the figures were released, adding that sales may rebound this month. “Buying interest is there, it’s just that closings are not happening on a timely basis.”
The explanation by Mr. Yun, whose mission is to make things look as good as he possibly can, doesn't fly because of one tiny detail: "The Know What You Owe" disclosures mandated by the Consumer Financial Protection Bureau took effect on October 3. Realtors and lenders had already operated under the new regime for almost a month before November came along. Therefore, the impact of CPFB's new three-day waiting period requirement for consumers — supposedly needed, in CFPB's words, so people could "review your Closing Disclosure and ask questions before you close on a mortgage" — should have primarily occurred in October, and not November.
The reality is that year-over-year November closings didn't change a bit, and that the seasonal adjustments turned out to be distracting noise.
Although November wasn't the disaster the press is portraying because of its blind reliance on seasonally adjusted data, the existing-home market has still weakened in the past couple of months. Unlike previous months this year which mostly showed year-over-year increases, October's revised actual sales of 444,000 sales trailed the 447,000 seen in October 2014, and, as seen already, November's sales showed no year-over-year change. Maybe the rebound Mr. Yun believes may be on the horizon for December will occur. But there's plenty of justification for believing that it won't, including the idea that November should have been the month the industry caught up with its regulation-driven delays — and he won't be able to rely on the waiting-period excuse.
Cross-posted at BizzyBlog.com.
