Seasonal sales and bad media math

Here’s an interesting piece by economist Barry Ritholtz on how not understanding things like annual home-sales cycles keeps the media confused about the housing market.

January is the worst month of the year for sales. From that low point, sales improve gradually for each of the next 6 months. They plateau over July and August, and then began heading down until December. This occurs year after year.

For those people who actually want to understand the state of the Housing market, you have two options that avoid the cyclical seasonality: 1) You use year over year data. This removes the seasonal patterns by  comparing January to January, June to June, etc. And 2) Compare non seasonably adjusted monthly data over the course of multiple years.

[snip]

The people who follow housing closely expected an increase in February. It happens every year, as the chart I showed yesterday revealed. (Chart below –ed) And the March data will improve over February data, and April over March, and May over April and June over May. That is the seasonal pattern, and it is only unexpected by those people who are unfamiliar with the data, and simply do not know better.

 

ehs-nsa-feb2009

About Andrew Kantor

Andrew is VAR's editor and information manager, and -- lessee now -- a former reporter for the Roanoke Times, former technology columnist for USA Today, and a former magazine editor for a bunch of places. He hails from New York with stops in Connecticut, New Jersey, Cincinnati, Columbus, and Roanoke.
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2 Responses to Seasonal sales and bad media math

  1. Tim Johnson says:

    I’ve been following ritholtz on this as well, and while i understand how he feels the media’s been suckered into buying these data, it doesn’t explain the huge run-up in homebuilder stocks since the data’s release.

    at least some of this buying is coming from institutions. these buyers apparently see a glimmer of hope in the data, and they’re not as easily fooled as the media.

  2. I think the good news, and that may be an exageration, is that the sales cycle still existed. If sales had gone done in February from January – which would be REALLY bad – we would have seen panic. The media, and the readers of the media, are all looking for any glimmer of hope.

    Where was Rithottz when we were going down and the media was buying into all the negative and inaccurate spin? Was he critizing the media for being gullable back then?

    I make it a rule to ALWAYS be skeptical of this type of data. Up from what? Last month? Last year?

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