What the August new home sales stories do not tell you

The spin that is driving the stock market higher is also making new home sales for August look much better than they were. Sales in July were revised downward so July was actually worse than it even looked initially. (Maybe they whispered that on CNBC this week amidst all the stock market cheerleading, but not many caught it.) So on a national basis, new home sales rose "unexpectedly" in August by 4.1% from the downwardly revised July number.

I don't make this stuff up. People like the CNBC spin meisters are whacking themselves on the heads with hammers, then they stop the whacking and report how great things are now that they've stopped the whacking.

Not everyone is falling for it though. As one A.G. Edwards analyst with a clue points out, there have been downward revisions of home sales for May, June, and July, so "the story is the housing market is still on a downtrend." With orders for durable goods falling two months in a row and that Philadelphia Manufacturing Index collapsing, this economy does not look as good as it superficially appears. Smells like early 2000 all over again.

Anyway, back to the new home sales in August numbers. In this September 24, 2006 story by Ann Brenoff, titled "A Maserati - as bait", it turns out builders (as well as other sellers) are using new cars, new trucks, new plasma TVs, and vacations. Here in California, Centex Homes "is offering Southern Californians special financing programs with initial rates starting at 0.875%. Up north, the same builder was giving away in-ground swimming pools. Another builder up north offers annual memberships to a golf club. These extras are not taken into account in home sales figures.

But some are starting to wise up. A few people out there actually do realize that it makes more sense to just knock the $40K or so off the sale price and spare the gimmicks. The buyer could end up with a lower property tax bill as a result.

Well, we know that builders have tried Easter egg hunts and fake families to sell places, and new house coloring books for the kiddies, and that other sellers have used string quartets, celebrity book signings, and gourmet chefs at open houses. But I'm not hearing any glowing reports about the effectiveness of all this gimmickry.