To borrow (and twist) a phrase from famed politician Tip O'Neill:

"All real estate is local."

So, here we are, another month passes and another series of national home sales reports leaves us wondering about the state of housing in America.

But does the data really tell us anything?

Point #1: New Home Sales only measures the number of new contracts written on homes that are newly-built.  The report doesn't do follow-up to see if the homes actually closed, though. 

With reports of cancellations reaching 40% or more even as far back as November 2006, new homes sales figures are also offset by:

• Tightening mortgage guidelines disqualifying buyers that were previously "pre-qualified"
• Buyers that are unable to sell their previous residences and do not want to carry mortgages on two homes

New Home Sales tells us how many buyers are willing to put down a refundable deposit, but doesn't tell us anything about how many of them actually "bought" the home.  The Census Bureau even acknowledges this in a very strongly worded disclaimer.

Point #2: Existing Home Sales is a national news story but real estate sales is local.

Each month, the National Association of Realtors® releases their report on existing home sales nationwide, including region-by-region breakdowns, a "home supply" calculation, and a national median sale price.

Again, all of this is worthless because the report is looking national instead of local.

All of live on a street and would probably say that our street is a lot different from the street around the corner.  The differences may be in architecture, or proximity to major thoroughfares, or zoning requirements, or anything else that makes a street unique.

It is these small differences set the home values in a given neighborhood and are what makes one neighborhood flourish while another neighborhood flounders.  The homes on your block may be selling like hotcakes but homes a mile away could be showing a 300 DOM.

Now, that's just a neighborhood difference. 

The National Association of Realtors® wants to lump in entire cities, states and both sides of Continental Divide into one big blob of statistics.  That includes the 3,652 miles between Cape Flattery, WA and Key West, FL.  You can see why Existing Home Sales data is irrelevant.

Point #3

Because both the New Home Sales data and Existing Home Sales data have serious flaws in their applicability to everyday living, the data points should be considered irrelevant in determining whether home prices are rising or falling on a micro-level (i.e. neighborhoods).

On a macro-level, however, the data can be useful in predicting corporate profitability and consumer spending patterns.  New home sales lead to new home construction and that creates jobs.  Existing home sales creates a need for furniture and appliances and that drives the economy.

So, on a broader scale, strength in New Home Sales and Existing Home Sales propels the economy forward whereas weakness slows the economy down.

Point Conclusion

Both reports showed signs of weakness in July but neither factored in the credit turmoil that hit at the end of July.  Over the next few months, we may see both NHS and EHS take a dive and -- if that happens -- it will spell weakness for the U.S. economy.

In an ironic twist, that weakness would drive down mortgage rates and create buy-side pressure on homes, perhaps adding some fuel back to the economy.

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Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.