Landmark Links March 2nd – Jumping to Conclusions


Lead Story…. When I started writing this blog post earlier in the week, my initial intent was to focus on a couple of conflicting headlines from recent housing reports.  The first dealt with a seemingly bad January new home sales report from CNBC entitled Rising mortgage rates hit new home sales hard, an ominous sign for builders opened with this downbeat blurb:

Sales of newly built homes are falling, and the culprit is clear. Home buyers increasingly can’t afford what they want. Higher mortgage rates, combined with the loss of homeowner tax breaks in some of the nation’s most expensive markets, are taking away buying power.

Sounds bad, right?  Also clearly appears to indicate that the trend of falling inventory and rising prices could/should be coming to an end in the near future if the affordability problem has now hit critical mass thanks to higher rates, rising prices and a loss of homeowner tax breaks.  Only, it’s never that simple.  The Case Shiller national home price index came out soon after and the very same source, CNBC posted an article with this headline the very next day: Home prices surge 6.3% in December amid critical housing shortage.  Quick side note: the one report was from December and the other was from January so they don’t exactly cover the same time period.  Still, it would be very difficult for both of these reports to be correct.  While prices often continue to rise at the end of a boom after sales have slowed, we would expect to see inventory rise more substantially than it has in recent months.  So, how does one reconcile these two reports?  Leave it to the team at John Burns Real Estate Consulting – Rick Palacios, Jr in particular – who pointed out that the first report is most likely incorrect in a post entitled Wrong Again—New Home Sales Actually Rose in January (emphasis mine):

I suppose we should thank the Census Bureau for publishing incorrect conclusions and footnoting a 19%+/- margin of error. However, it gives our clients heartburn. Our clients pay us to be right—not to be overly bullish or bearish.

This week, the Census Bureau and HUD reported January new home sales fell both month over month and year over year. Consider the following:

  • The press rarely notes that the data has +/- 19% month-over-month margin of error and +/-16% year over year. In other words, they don’t even know whether sales rose or fell last month. That’s not a statistic worth printing in our opinion.
  • Our survey of 300+ home builders indicates January new home sales jumped 20% month over month and 14% year over year. For statistical accuracy, we survey the same builders monthly who as a group account for roughly 17% of all new home sales. We’ve been doing this survey for almost a decade and know as a matter of fact it is one of the best housing signals available.
  • Public home builders just reported a strong 4Q-17, with many noting even better results in January. We spend days combing through all the public home builder earnings calls each quarter, gleaning industry insight and local market intelligence in the process. Reading the comments below from this quarter, you’d be hard pressed to think new home sales fell off a cliff in January.
    • Toll Brothers: “Recall that the tax reform provisions were known in early to mid-December, but our buyers didn’t seem to blink. Contracts in January improved 21% year over year.”
    • TriPointe Group: “Regarding the beginning of 2018 and higher mortgage rates…the first 6 weeks of 1Q-18 we continue to see strong demand.”
    • Taylor Morrison: “We’ve seen momentum carry into the company’s strongest January yet with a pace of 2.5 [net sales per community] that accelerated throughout the month. The pace compares to 2.3 in January of 2017, almost a 10% increase on top of a nearly 24% increase last year.”
    • William Lyon Homes: “2018 selling season is off to a great start, with net new home orders in January demonstrating a healthy double-digit increase YOY.”
    • Beazer: “January was up YOY…the data into January has been very strong.”

In conclusion, home builders started off 2018 on a strong foot in January. For those of you who would like additional help separating housing noise from true signal, please reach out.

I have to agree with JBREC here.  Publishing the data while only footnoting the massive margin of error doesn’t seem like great business journalism.  In fact, the entire data set is probably of little value since it is so volatile and in-accurate.  Overall, it probably does a disservice to release this sort of thing, especially when a more accurate but less widely circulated study like the JBREC one shows the exact opposite result.  My big takeaway is the the trend that we have been experiencing is still in place: price inflation brought on mainly by abnormally low inventory.


Perception Versus Reality: Actual inflation and growth have shifted very little in the past few months but beliefs about future inflation and growth have, leading to a massive selloff in bonds.

Risky Business: The current fiscal plan out of Washington to run high budget deficits while the economy is already hot is a bet that the additional spending can boost productivity at a time when population is decreasing due to lower birthrates/immigration and trade restrictions.

The Oracle Speaks: Berkshire Hathaway has over $100 billion that it’s looking to invest but can’t find anything worth buyingSee Also: Warren Buffett thinks it’s a “terrible mistake” for long term investors to be in bonds right now.


Back to School: Foreign capital is pouring in to student housing as an alternative to trophy assets as the cycle continues to mature.

Going Vertical: Indoor farms are becoming a thing in the concrete jungle of New York as new farming technology is helping to defray the high cost of space in one of the world’s most expensive cities. (h/t Dave Kidder)


What A Drag: The US construction industry still hasn’t completely recovered from the depths of the great recession, mainly because it still costs too much to build things in the US as productivity has languished.  The result is a drag on the economy in general and on male employment in particular.

Exclusionary: San Francisco’s inclusionary law is a mess and is being misused by supervisors to shake down developers and ultimately kill housing projects.

Back Into the Shadows: Non-bank lenders are experiencing a boom and taking a larger share of the mortgage market again.


Dropping Like Flies: Nearly half of 2017’s cryptocurrency ICO projects have already diedSee Also: spouses are hiding assets in Bitcoin and other cryptocurrencies in order to get more favorable divorce settlements. And: Venezuela’s ill conceived “oil backed” cryptocurrency is not going to save it.

Shocking If True A new study found that 96.5 percent of all of those trying to become YouTube starts won’t make enough money off of advertising to crack the U.S. poverty line.  Even those with over 1 million views a month probably won’t be able to earn enough to make rent.  Take that, Millennials.

Non Committal: In today’s 24-hour news cycle, pundits have learned that one way to never be wrong is to assign a 40% outcome to any long-shot outcome.  That way you can still brag when correct but avoid being called out for crappy predictions.

Misaligned Interest: Amazon made $5.6 billion in profits last year and reportedly paid zero American dollars in Federal taxes thanks to locating their global headquarters in Luxembourg.

Chart of the Day

Fascinating: New research suggests that the declines in conception growth (fewer pregnancies) are a reliable predictor of US recessions rather than the other way around.

Source: NBER


Roll Tide: A woman was busted for trying to bring a cocaine filled bible into a county jail while wearing a University of Alabama hoodie because Mississippi.

Giddy Up: A man was arrested and charged with DUI for riding a horse onto a freeway in Long Beach.

This Will End in Tears: The Russia-led Eurasian Economic Union have granted  fans the right to bring banned substances including cocaine, pot and even heroin into stadiums during this summer’s World Cup (with a doctor’s note, of course).  Given how notoriously level headed and unemotional international soccer fans are, the cocaine is sure to be a welcome addition.

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