As we wrote in the weekly summary

New home sales are Monday and Case Shiller housing index on Tuesday. As with every housing report we'll react in surprise that June is better than May which is better than April - which happens every year. We'll continue that charade until seasonality stops kicking in I suppose.

Our high on the day so far was just after 10 AM when the new home sales report came out. Predictably, the headlines are in and new home sales surged. Much like the financial media, the mainstream media never bothers to really look under the hood - whether it be economic reports or earning reports.

As we've said countless times, housing is seasonal. My worry about all this green shootery related to housing as it does well in May-August is what happens when seasonality turns against it. Which will happen in the fall.

I could do the following exercise for any number of economic reports but at this point it's a lost cause battle since looking under the surface is more of a mental exercise than anything that pertains to investing. Hence we haven't been dissecting economic reports as much of late - really why bother? The way to win in the stock market is smile, high 5 your friend and stick to general dramatic themes best explained in 10 seconds or less with generic Kool Aid tags such as housing good, me happy, buy stock.

The only good thing I saw today was inventories dropped below 9 months. Below 6 months would be good but beggars can't be choosers. Now the irony is... we just celebrated the fact July 17th that homebuilders are INCREASING their new home starts.

Construction of new U.S. homes rose in June to the highest level in seven months as builders rushed to pour foundations...

The Commerce Department said Friday that construction of new homes and apartments jumped 3.6 percent last month

...was better than the 530,000-unit pace economists expected, and was the second straight monthly increase

So just as inventories finally break below 9 months (these are new homes mind you, not existing homes) builders already are scurrying to build more. And yet we rally on both news events. As a bull you can have your cake and eat it too; it's a much more simple existence than a realist - let me tell you.

Let's check the breathless reporting

  • New U.S. home sales rose by the largest amount in more than eight years last month, in another sign the housing market is finally bouncing back from the worst downturn in decades. (8 years! wow, time to call HGTV and get Flip That House out of hiatus)
  • The Commerce Department said Monday that sales rose 11 percent in June to a seasonally adjusted annual rate of 384,000, from an upwardly revised May rate of 346,000.

Sounds great! The actual number doesn't matter, mind you - it just has to be better than expected versus a group of economists who almost to the man (woman) missed this entire financial disaster.

  • ... exceeded the forecasts of economists surveyed by Thomson Reuters, who expected a pace of 360,000 units.

I'm feeling faint.... the news is so overwhelmingly good. Even though sales surge EVERY year in the spring let me shoot this bunny out of a cannon in celebration because....

  • Sales have risen for three straight months.

Now keep in mind this is with taxpayer handouts of $8000 to first time homebuyers, along with unnatural mortgage rates created at the expense of savers in this country via Uncle Ben's actions. More on this later.

So the important question in a SEASONAL number is the year over year % change.

  • Sales of new homes were down 21% versus June 2008.

So despite the handouts and almost multi generational lows in cheap money mortgages - including over half the country now in FHA loans (which many times require only 3.5% down) we still dropped 20%. Praise the green shoots.

What was disconcerting if you are a home builder (but not to worry, homebuilder stocks shot up at 10 AM) was the huge drop in month over month prices. Year over year was bad... but the drop between May and June was almost unheard of: 6%. Don't even try to annualize that.

  • The median sales price of $206,200, however, was down 12 percent from $234,300 a year earlier and down nearly 6 percent from $219,000 in May.

So this means either builders are selling smaller homes (which some are) or Americans simply cannot afford (they can't) the old prices... despite the taxpayer handouts and multi generational low rates. This would seem to be a strike at profitability at homebuilders - but we don't really need profits to drive this market up. We just need layoffs and green shoots.

Now the only real good news in the report, and it was mild, was the inventory number (and again, offset by the recent report of a jump in new housing starts):

  • There were 281,000 new homes for sale at the end of June, down more than 4 percent from May. At the current sales pace, that represents 8.8 months of supply -- the lowest level since October 2007.

So that's the new home report from a more in depth perspective - we get these sort of economic reports every week and trying to explain what is really going under the surface is a moot point since the trumpets blaring on financial infotaintment TeeVee is all the market seems to really care about. The writers at Reuters and AP and the like should also spend more than 30 seconds regurgitating data points.

With all that said, I will ask the same question I've been asking for 8-9 months. What happens to the green shoots when taxpayer handouts end (if they ever do?) and Bernanke is forced to stop manipulating rates downward. If this is the type of strength we have with every arm of government pushing Americans into housing ....what happens if we (brace yourself) face a horrific world of 6.25% mortgage rates. [Jun 3, 2009: A Country that Cannot Function without Easy Money]

Don't ask that question... just buy stocks. The bunnies are flying through the air. And the $15,000 tax credit for ALL future home owners (not just 1st time) is coming this winter. Our American money trees are endless as are our grandchildren's piggy banks. We don't care how many generations of the future we have to sacrific - we will reflate this housing market, together as patriots.

Mmmm... Kool Aid.