Newsroom Insider: How New Home Sales Mislead US


It’s frustrating to watch the handful of news organizations that cover United States economic indicators screw-up the same data month after month, as they do with new home sales.

The federal government’s measure of signed contracts for new residential construction fell for the fourth straight month in August, to a seasonally adjusted annual pace of 295,000. That puts new home sales on pace to move 318,000 dwellings in 2011 – the fewest purchases since the government started tracking them in 1963.

The U.S. population has grown to 312.5 million from 189.3 million in that time. However, the government and the mainstream media continue to cover new home sales as if those additional 123 million Americans don’t exist.

Comparing the present unadjusted annual pace of 318,000 new home sales so far this year by 312.5 million Americans to the 560,000 purchases that were actually made by 189.3 million people in 1963 is like comparing the food eaten by a 250 pound man to the amount consumed by a 50 pound child and ignoring the size disparity that makes less consumption by the bigger person more significant.

That omission makes the housing market decline look a little less devastating. It’s lipstick on a pig.
We’re looking at a 66 percent decline in new home sales per million Americans this year in comparison with 1963. Without the population adjustment we’re looking at a 43 percent decline. That’s a huge disparity.

The various economic news teams dutifully regurgitated government data for new home sales Sept. 26. However, they failed in the core journalism role of “goverment adversary” by neither challenging the data nor analyzing it effectively.

They continue to commit the same sin that tripped up stock analysts during the dot-com boom by acting like market cheerleaders.

It’s a betrayal of the public trust.

Journalists are neither clerks nor cheerleaders and we’re not talking about rocket science here. We’re talking about adjusting new home sales data for the enormous population growth since 1963 to give potential buyers an accurate picture of the true depth of the housing decline.

I’m not an economist and I only covered economic indicators full-time for three years, but even I can figure this one out.

The notion that my betters on the various economic reporting teams don’t know this adjustment needs to be made is preposterous. They have made a conscious decision to ignore this disparity and undermined their own standing as journalists and patriotic Americans by doing so. This kind of willful ignorance and misrepresentation is not the same thing as an honest mistake. 

This is a knowing lie and a journalistic sin of omission.

The government has never adjusted new home sales to reflect the additional 123 million Americans who now live in this nation. Without that adjustment, the present 318,000 new home sales pace represents a 43 percent departure from the 560,000 new homes sold in 1963, a 53 percent departure from the historical annual average of 671,000 and a 60 percent departure from the 798,000 annual average produced since 2000.

Once the same data are adjusted for population growth, we’re looking at an unadjusted annual pace of 1,017 new home sales per million Americans so far this year. That represents a 66 percent decline from the 2,958 sales per million Americans in 1963, a 63 percent drop versus the historical annual average of 2,719, and a 62 percent decline from the 2,694 annual sales per million recorded since 2000.

Those are statistically significant undershots that could play a role in misguided consumer purchase decisions. And this is the same kind of misrepresentation that broke the bond of confidence between housing professionals and prospective home purchasers.

People are afraid to get fleeced. That fear has undermined the sale of new dwellings in combination with the huge supply of foreclosed homes on the market. It’s also the reason so many unfinished projects have been abandoned by homebuilders.

The answer isn’t to let homebuilders raid the treasury again for another subsidy to support their elevated prices. The answer is better regulation of housing market misrepresentations, like those made by the predatory lenders that have displaced millions of American families, and to fix a government data series that makes housing activity look better than it is.

To adjust new home sales data for population growth, all you have to do is calculate purchases per million Americans. Again, it’s not rocket science.

The failure of the various eco data teams to make this basic adjustment raises serious questions about their role in the market and the integrity of their leadership.

You know, underneath it all I’m still really just a working class kid from the Bronx. They cleaned me up at Columbia University’s School of Journalism and I bought a couple suits at Goodwill, but at a certain point the Bronx in me just gets tired of being polite about these knowing misrepresentations.

So, please allow me to summarize my views for my fellow economic journalists: this is wrong.

Pretty please with sugar on top – cut it out.

Methodology: I used population data from the monthly personal income report released by the Bureau of Economic Analysis to produce my sales per million estimates. I roughly estimated the August population at 312,820,000 because that data had not been released at the time this column was written. My estimate for the 2011 new home sales pace was produced from monthly sales data for the first eight months of this year that had not been adjusted for seasonal variations.