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By Annaly Capital Management:

As if we needed more confusion regarding the state of the housing market, on April 20, 2010 Standard & Poor’s issued a press release that stated the following:

“For the S&P/Case-Shiller Home Price Indices, S&P reports two data sets – before seasonal adjustment and seasonally-adjusted. In some recent reports the two series have given conflicting signals, with the seasonally-adjusted series rising month-over-month and the unadjusted series declining. After reviewing the data, the S&P/Case-Shiller Home Price Index Committee believes that, for the present, the unadjusted series is a more reliable indicator and, thus, reports should focus on the year-over-year changes where seasonal shifts are not a factor.”

It’s true that in recent months the seasonally-adjusted S&P/Case-Shiller 20 city index has shown slight price gains where other indices (FHFA, LoanPerformance) have shown declines. The housing market certainly has normal seasonal patterns, and it makes sense that when the market is not “normal”, neither will be the seasonal adjustments.

Home sales activity has been equally as tough to decipher. The effects of the Fed’s MBS purchase program on mortgage rates is nearly impossible to determine (except to say very generally that the rate probably would have been higher), and the effects of the homebuyer tax credit has been tough to quantify. As a reminder, the original tax credit for first-time home buyers was set to expire on December 1, 2009. It was then extended until June 30, 2010 and expanded to include all home buyers, not just first timers. In order to qualify, contracts must be signed by April 30, 2010 so that sales can be closed by June 30, 2010. On Thursday, the NAR released data on existing home sales in March, where the effects of the tax credit have been fairly obvious.

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Homes are counted in this data series when the sale is closed. That spike you see back in November of 2009 is the expiration of the first tax credit. The effects of the expanded/extended tax credit have been more subdued than the original one, but if history is any guide we won’t see a peak in existing home sales until June, the final month of the credit. It’s hard to look at the graph above and not think about Cash-For-Clunkers and the temporary spike in auto sales that it induced.

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This morning we received new home sales data for March from the Census Bureau. Much was made of the impressive month-over-month percentage change of 26.9%, but we should point out that the Census gives a 90% confidence interval of +/- 21.1%, which is fairly large. This big monthly jump in sales looks slightly less impressive when put in context.

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Not much of a recovery. The effect of the tax credits has been much more muted in this data series. In contrast to the existing home sales data, sales are counted in this data when the contract is signed. The very small peak you see in late 2009 is actually in July, several months prior to the 12/1/09 deadline. Similarly we would expect to see the effects of the 6/30/10 expiration of the tax credit show up in new home sales in March and April, which seems to be occurring.

Given the impressive government effort towards stabilizing the housing market, the very modest results, and the winding down of this support (the Fed is done with its MBS purchases, the tax credit expires soon) the rest of 2010 should be interesting to watch.

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