Bullishness often demands ignorance of the fundamentals - Bill King, The King ReportLast week I published Part 3 of my series on why I think the housing market is about to head back to new bear market lows. The day after it was published on Seeking Alpha (and posted on this blog), the Census Bureau released its new home sales report for June. Although it beat the consensus estimate for June, the May report was revised lower by quite a bit. In fact, it's safe to say that because of the way the Census Bureau counts a new home "sale," that the initial number published is often quite unreliable and substantially over-estimated.
The Census Bureau records a "new home sale" when an escrow deposit is taken in or a sales agreement is signed. Keep in mind that escrow deposits are typically 1-2% of the cost of the home - i.e. a fraction of the equity required for mortgage financing. Right now the cancellation rate in general for new homes is running in the mid-20% area.
I wrote another article explaining why, despite beating the Wall Street estimate, the new home sales report triggered a big sell-off last Thursday in the housing stocks. You can access that article here: The June New Home Sales Report.
June and August are typically the peak months for home sales on a seasonal basis. I fully anticipate that the next couple of new home sale reports will have large downward revisions for the June number, as the June report only partially reflects the jump in cancelled contracts that will occur from the May spike in mortgage rates. Existing home sales for July will also be highly affected. Sorry, but it's all downhill from here for housing. Watch for negative GDP reports as well.