Monday, November 23, 2009

October Home Sales Far Exceeded Expectations

New York Times news article "October Home Sales Far Exceeded Expectations" (November 23rd, 2009) failed to properly analyze an increase in quantity of home sales. It claims that an increase in quantity may herald an "upswing" for a housing market, presumably an increase in demand.

Existing-home sales in October rose to the highest level in more than two years, according to a report released Monday, driven by the popularity of a credit for first-time home buyers. The surge far outpaced expectations and nurtured hope that the stubbornly frail housing market might be on the upswing.

The article notes that quantities rose and prices fell. If we take a linear partial identification strategy, all that tells us is that the percentage change in supply of houses to be sold was greater than the percentage change in demand of houses. Far from heralding an "upswing" in housing market demand, we should read this as a relative increase in oversupply.

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