For months, I've been studying the housing market economic indicators, learning to distinguish between month-over-month and year-over-year comparisons, the relative volatility of multifamily housing sales figures, and the idiosyncrasies of seasonally adjusted and non-seasonally adjusted data. As I grapple with the granularity of the data, I enjoy watching seemingly random or otherwise inexplicable fluctuations start to make sense. And in an era where every economics professor has a blog, there's always someone to turn to for further insight.
Today's release of new home sales figures offers a perfect illustration. In line with other recent data that strongly suggests the housing market is in a serious slowdown, seasonally adjusted new home sales dropped in June, both as measured against May (by 3 percent) and by June 2005 (11 percent).
However, if you look at the non-seasonally adjusted raw data for the whole year it doesn't look so bad. Eighty-seven thousand new homes were sold in December 2005. By March, that figure had risen to 108,000. April, 103,000, May, 107,000, and then June, back to 103,000.
Thanks to an informative post by U.C. San Diego economics professor James Hamilton, I now have a much more nuanced understanding of how to look at these numbers. Seasonally adjusted data tries to take into account recurring factors that warp the numbers. As Hamilton explains, in the case of housing December is always the worst month for sales and March is the best. So if you just plotted the raw numbers for December to March (or for December to June), you'd think the housing market was fine -- in fact, sales of new homes are up 17 percent in June over December.
But sales are always up over that time period. And after crunching the data with a slew of neat charts and judicious context, Hamilton encourages us to look at the numbers with wiser eyes. "In an average year prior to this one, June sales would be 36 percent above the December trough, whereas this year they are up only 17 percent since December. Only 4 years out of the last 41 years (which includes 6 recessions) saw as weak a December-to-June gain."
It's fun to watch a master at work. If you are a housing market data geek, and right now, that hobby has become an increasinlgy popular pasttime, as everyone from Ben Bernanke on down wonders if a housing bust is going to drag the U.S. into a recession, Hamilton's seasonal adjustment post is essential reading.