Good News, Bad News, Take Your Pick

You might guess that there would be little good to say about a large drop in the median price of new homes sales in September.  But then maybe you're not trying hard enough.  From the Wall Street Journal (subscription required):

The newspaper headlines will blare that new-home prices fell by 9.7% year over year, the largest drop since 1970. Admittedly, this is a shocking headline, but do not make too much of it.

Why?

First, as we have noted many times, the mix changes every month so that these price numbers do not pertain to a comparable mix of homes over time. If people are scaling back their desires, if the regional mix changes, etc., then the numbers get skewed...

"The median new home price fell by 1.7% [in the third quarter] across the nation. However, the median sales price rose in each of the major geographic regions (Northeast +19.3%, Midwest +4.0%, South +0.7%, West +1.6%), which suggests that some of the home price decline is due to a shift in the regional pattern of sales toward lower-priced regions." --Bear Stearns Economics

On the opposite side of the not-quite-what-meets-the-eye spectrum stands the September durable goods report. From Reuters, via CNNMoney:

Orders for durable goods -items meant to last three or more years - leaped a much greater-than-expected 7.8 percent in September on a rush of civilian aircraft orders, a Commerce Department report showed.

But orders rose a smaller-than-forecast 0.1 percent when volatile transportation orders were stripped from the total...

And, despite the caveats in the housing report, nobody is suggesting that all is well.  Again from the Wall Street Journal:

The price decline] exaggerates the extent of the weakening price picture. Because sales in the more expensive Northeast fell sharply while sales in the South rose, the mix of homes sold shifted toward those priced at under $200,000, while sales of pricier homes fell as did the relatively small subset of homes prices at under $150,000. Nonetheless, the stronger sales helped builders pare inventories by about 1.9% but the stock of unsold homes remains at an uncomfortably high level that would still require 6.4 months to liquidate at the current selling rate. Summing Up: New home sales rose a "surprising" 5.3% in September BECAUSE builders were more aggressive in cutting prices. --Nomura Economics Research

Still, the sense of the day was relatively upbeat.  From Reuters:

"It is hard to say but it looks like we are in for the soft (economic) landing," said Stephen Gallagher, chief U.S. economist at Societe Generale in New York. "It is telling me that the worst is over for housing"...

Former Federal Reserve Chairman Alan Greenspan said on Thursday the U.S. economy was pulling away from a sharp housing-sector downturn and that the outlook for growth was "reasonably good." But, he noted in a speech delivered before the government released the home sales figures, that the sector's woes were "not over."

"Most of the negatives in housing are probably behind us," Greenspan said at a Washington conference. "The fourth quarter should be reasonably good, certainly better than the third quarter"...

"Outside of the volatile aircraft orders, manufacturing is still subdued and that's consistent with an economy that's growing moderately," said Gary Thayer, chief economist at A.G. Edwards and Sons in St. Louis.

You will, of course, have no trouble finding skeptics.