NAR overestimated real estate sales by 14%
November existing-home sales up 12% from year ago
By Matt Carter, Wednesday, December 21, 2011.
Balloon houses image via Shutterstock.com.The National Association of Realtors says it overestimated home sales by more than 14 percent since 2007 because an adjustment that the trade group makes to data it collects from multiple listing services to account for sales that take place outside of MLSs got out of whack over time.
NAR says it's fixed the problem and "rebenchmarked" statistics going back to 2007, when it said its adjustments began to diverge from previous assumptions about how many sales take place outside of MLSs.
The trade group blamed much of the problem on a decline in "for sale by owner" sales -- properties not represented by real estate brokers and therefore not listed in an MLS.
NAR said consumer survey data show FSBOs accounted for 9 percent of sales in 2010, down from 16 percent in 2000.
"In addition to a decline in FSBO transactions, more builders began marketing new properties through real estate brokers (and those sales) weren't completely filtered from the existing-home data," NAR Chief Economist Lawrence Yun said in a statement.
"Some property listings on more than one MLS, and issues related to house flipping, also contributed to the downward revisions."
After rebenchmarking 2010 data, NAR now says there were 4.19 million existing-home sales last year, down 14.6 percent from the 4.9 million sales the group previously reported. For 2007 through 2010, sales and inventory were 14.3 percent less than previously reported, the group said.
Source: Calculated Risk blog.
NAR said the rebenchmarking doesn't affect previously reported median home prices or months' supply of homes for sale. Previously reported month-to-month trends in housing sales were also unaffected, because sales for each month have been revised downward.
Although rebenchmarking will also be done at the state level, data reported by local MLSs and Realtor associations is still valid, because those numbers are published before they are adjusted.
The need to rebenchmark NAR's existing-home sales statistics is generating national headlines that could damage the trade group's credibility.
Anticipating NAR's revisions, the Greater Tulsa Association of Realtors in Oklahoma last week issued a press release reassuring consumers that "the newly revised national data has no impact for local homebuyers" and that "rates are (the) lowest in history and it's still a great time to buy in Tulsa."
Phoenix-based broker Jay Thompson said that so far his clients haven't voiced any concerns about NAR's need to revise its existing-home sales statistics.
"I think within the real state industry we're probably more concerned about it, and certainly more aware of it, than consumers are," Thompson said.
The MLS numbers "are good and solid," he said, and his clients put more faith in the MLS-based local market reports he provides them with rather than media reports on national sales figures.
"The mainstream media tends to blow these things out of proportion," Thompson said. "I have no evidence that buyers and sellers pay any attention to the numbers that come out of NAR. They see the headlines but it never comes up in conversation."
NAR's national statistics are important to economists, policymakers and others who make decisions based on macro-level data including national home sales.
The benchmark revisions, for example, will require the U.S. Bureau of Economic Analysis to make a small downward adjustment to its estimates of national gross domestic product (GDP). That's because the bureau relies on NAR's existing-home sales figures to estimate real estate brokers' commissions on the sale of residential structures, most recently pegged at $55.5 billion a year, down from a peak of $109.9 billion in 2005.
If that figure were adjusted downward by 14 percent, the $7 billion reduction would have only a slight effect on the U.S.'s $15 trillion GDP. Brokers would not be affected because they collect actual, rather than estimated, commissions.
NAR said that in the process of rebenchmarking, it consulted with the Federal Reserve Board, the Department of Housing and Urban Development, Freddie Mac, Fannie Mae, the Mortgage Bankers Association, the National Association of Home Builders, CoreLogic, and individual economists.
The latest, rebenchmarked data from NAR shows existing-home sales increasing by 4 percent from October to November, to a seasonally adjusted annual rate of 4.42 million homes -- a 12.2 percent increase from a year ago, when homes were selling at a pace of 3.94 million units a year.
Housing inventory was down 5.8 percent from October to 2.58 million existing homes for sale, a seven-month supply at the current sales pace. Inventories peaked at a record 4.04 million in July 2007, NAR said, citing the rebenchmarked figures.
The national median existing-home price was $164,200 in November, down 3.5 percent from a year ago.
Distressed homes, including short sales and homes repossessed by lenders, accounted for 29 percent of sales in November, down from 33 percent a year ago. NAR said 19 percent of home sales were lender-owned properties and 10 percent were short sales.
All-cash sales -- mostly to investors -- accounted for 28 percent of existing-home sales, down from 29 percent in October and 31 percent at the same time a year ago.
First-time buyers accounted for 35 percent of existing-home sales, up from 34 percent in October and 32 percent in November 2010.
Breaking down existing-home sales by category, NAR said single-family home sales were up 4.5 percent from October to a seasonally adjusted annual rate of 3.95 million, a 12.9 percent increase from a year ago. The median existing single-family home price was $164,100, down 4 percent from a year ago.
Existing condominium and co-op sales were unchanged from October, with transactions closing at a seasonally adjusted annual rate of 470,000, up 6.8 percent from a year ago. The median existing-condo price was $164,600, down 0.2 percent from a year ago.
Regionally, existing-home sales in the Northeast were up 9.8 percent from October to an annual pace of 560,000, a 7.7 percent increase from a year ago. The median price in the Northeast was $240,200, down 0.1 percent from a year ago.
Existing-home sales in the Midwest were up 4.3 percent from October, to a seasonally adjusted annual rate of 960,000, a 15.7 percent increase from a year ago. The median price in the Midwest was $133,400, down 4 percent from a year ago.
In the South, existing-home sales were up 2.4 percent from October to an annual pace of 1.74 million, a 12.3 percent increase from a year ago. The median price in the South was $143,300, down 2.1 percent from a year ago.
Existing-home sales in the West were up 3.6 percent from October to an annual level of 1.16 million, up 11.5 percent from a year ago. The median price in the West was $195,300, down 8.4 percent from a year ago.
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Submitted by Stan Brody on December 21, 2011 - 4:01pm.
I have warned of this (fraud) coming from the NAR for over three years...and the primary reason why, as an agent I am proud to state that I AM NOT a Realtor... Instead of seeking an answer to the crisis, the NAR only did the Wall Street thing... figured out a way for its members, through short sale and REO training, to monazite the crisis... it did the Wall Street thing... aided and abetted in the screwing of the public…
Everything in this economic depression is tied directly to the housing crisis. Real estate is DIRECTLY responsible of over 22% of every job here in the United States... not China, Canada, Mexico, or India... here in in the US... There can, nor will be any sustained recovery until housing is at least stabilized... The Wall Street banks that created this entire fiasco have been bailed out (rewarded), and the homeowners are left holding the bag...
In bailing out Wall Street and the banks while at the same time ignoring housing, congress effectively shunted all of the losses onto the backs of the homeowners. Unless housing is, again, at least stabilized... even without any equity, homeowners, aka consumers, will not truly commence buying the things or doing the things that create jobs.... a man's home is his castle; and the castle is under siege... the lord of the castle is hunkering down, waiting for relief from the king and other knights...who are off trying out for roles in a Monty Python's Holy Grail remake...
California alone has already experienced over 4 million short sales and REO resales... resulting in an annual loss in real estate tax revenue (based on the 2006 peak) exceeding $9 Billion... Further, there are over 3.5 million homes currently under water PLUS another 300,000+ REO's, 100% of which WILL have their real estate tax rates reduced... thus the state will find itself in a deficit (as announced by the
governor's office) of over $13 Billion next year... there is no way that other source of taxation can be increased sufficiently to attain an offset... is default in the states’ debt be on the horizon... and if that occurs in California (6th largest economy in the world) a national and ultimately worldwide depression the likes of which not even that guru of the so called Great Depression, Ben Bernanke will able to fathom...
Submitted by Stan Brody on December 21, 2011 - 4:05pm.
I have warned of this (fraud) coming from the NAR for over three years...and the primary reason why, as an agent I am proud to state that I AM NOT a Realtor... Instead of seeking an answer to the crisis, the NAR only did the Wall Street thing... figured out a way for its members, through short sale and REO training, to monazite the crisis... it did the Wall Street thing... aided and abetted in the screwing of the public…
Everything in this economic depression is tied directly to the housing crisis. Real estate is DIRECTLY responsible for over 22% of every job here in the United States... not China, Canada, Mexico, or India... here in in the US... There can, nor will be any sustained recovery until housing is AT LEAST stabilized... The Wall Street banks that created this entire fiasco have been bailed out (rewarded), and the homeowners are left holding the bag... and, thanks to the bought and paid for congress... perfectly legal... morally bankrupt... but quite legal, thank you...
In bailing out Wall Street and the banks while at the same time (deliberately) ignoring housing, congress effectively shunted all of the losses onto the backs of the homeowners. Unless housing is, again, at least stabilized... even without any equity, homeowners, aka consumers, will not truly commence buying the things or doing the things that create jobs.... a man's home is his castle; and the castle is under siege... the lord of the castle is hunkering down, waiting for relief from the king and other knights...who are off trying out for roles in a Monty Python's Holy Grail remake...
California alone has already experienced over 4 million short sales and REO resales... resulting in an annual loss in real estate tax revenue (based on the 2006 peak) exceeding $9 Billion... Further, there are over 3.5 million homes currently under water PLUS another 300,000+ REO's, 100% of which WILL have their real estate tax rates reduced... thus the state will find itself in a deficit (as announced by the
governor's office) of over $13 Billion next year... there is no way that other source of taxation can be increased sufficiently to attain an offset... is default in the states’ debt be on the horizon... and if that occurs in California (6th largest economy in the world) a national and ultimately worldwide depression the likes of which not even that guru of the so called Great Depression, Ben Bernanke will able to fathom...
Submitted by Jed Lane on December 21, 2011 - 10:56pm.
While most won't read anything past the headline I feel it neccessary to point out that the benchmark assumption that is in question is the number of homes in bought as reported by the census bureau every ten years. In the 2000 census there was a long form which asked if a house had been purchased. That number was used to compare the number of homes purchased through the many multiple-listing services (MLS) in the nation. The long form wasn't used in the 2010 census so NAR had to find another data set containing the number of sales not related to the MLS. This article reads as an attmept to feed some froth into a very benign situation. CoreLogic bases calculations on same home sales from a database covering 58% of the population.
Projections are all based on assumptions. To say that a trade group is damaged because it found better data shows either a lack of understanding on how data sets are built or an agenda to spin. This is definately not reporting or an example of jounalistic integrity.
Jed Lane
Broker, GRI
Coldwell Banker St Francis Wood
http://www.FogCityGuide.com
415.425.9810
Submitted by Craig Kamman on December 22, 2011 - 7:26am.
I believe there is still more coming on this story. This reflects more on the quality of the US Census data and the ACS than it does NAR. I think they are taking appropriate steps in reformulating their methodology after discovering the flaws.
Submitted by Matt Carter on December 22, 2011 - 10:38am.
Hello Jed and Craig. This is our fourth article since February on the benchmarking issue. The first two articles addressed the use of the Census to benchmark in 2000.
Craig, NAR has not placed any blame on "the quality of the US Census data." The issue has been what happens in the 10 years between benchmarking.
When NAR rebenchmarked in 2000, it found it had underestimated sales by 13 percent, and revised 1990s data accordingly.
The fact remains that even if NAR had been able to use the 2010 Census to rebenchmark, they would still have had to revise their data back to 2007.
That raises the question whether a system that can only be rebenchmarked once a decade is a good system. NAR says now that it can no longer use the Census for benchmarking, it will rebenchmark more often.
Jed, the story does not assert that NAR "is damaged" by rebenchmarking. It notes that the national headlines about rebenchmarking "could damage the trade group's credibility."
For four years, NAR published statistics on existing home sales that overstated those sales by 14 percent. If the general public does not understand the issues involved in benchmarking, some may conclude that NAR deliberately overstated existing home sales in order to put a more positive spin on the downturn. There's plenty of commentary on news articles and blogs indicating that some people have, in fact, reached such conclusions.
In every article Inman News has published on the subject, we have attempted to explain the benchmarking issues to our readers. The story above, although it does not explain the process used to benchmark against the Census in 2000, lists the reasons given by NAR for the benchmark "drift": that FSBO sales declined, that more new home sales crept into MLS data, that some properties listed on more than one MLS were double counted, and that house flipping also contributed to NAR's overestimating existing home sales.
See also previous stories:
Decline in real estate sales greater than stated? (Feb. 15, 2011)
NAR overestimated home sales (Nov. 14, 2011)
NAR to release revised home-sale stats (Dec. 19, 2011)
Submitted by George Teichholz on December 24, 2011 - 4:58am.
This is major flaw by NAR. This kind of error should never occur. It is a disservice to a category that breeds a lot of criticism. We as real estate professionals really don't need this kind of " contribution" to our cause, which is constantly being bashed by the media.
NAR: thanks for nothing.
Submitted by Sam DeBord on December 24, 2011 - 9:17am.
Matt,
Kudos on your thoughtful and well-supported response to the comments.
The NAR has realized its calculations are outdated, and is making changes to correct that. The process has been transparent, and blame has been accepted. This situation has exposed some outdated data techniques, and should allow for a positive outcome long-term.
Data collection is one small part of the organization's outreach. For any brokers who question the NAR's value, just imagine if the legislative positions of the NAR hadn't been achieved in the past year. We would already be dealing with QRMs, a cancelled MID, and a host of other misguided pieces of legislation that would have further hindered the real estate market. We need to keep focused on the big picture.
Sam DeBord
Managing Broker, Realtor
Coldwell Banker Danforth of Greater Seattle
Submitted by Michael Garcia on December 24, 2011 - 10:40am.
It's interesting to me that we as REALTOR(R)s are expected if not commanded by our own ethics codes to be honest and truthful with all parties to our transactions, that our very own leaders of N.A.R. can make such a huge error in data statistics. Almost 3/4 of a million homes over estimated.
If I take the comps report from the local board and the comps are off by over 75% and share this information with a prospective buyer, have I handled my client with the utmost care and fair dealings? I hope all would say no. In fact, if the client went to file a claim against me, I can assure you that I would be put on probation or possibly lose my license.
But this individual maintains his position. Has he at least been written up for shoddy work?
3/4 of a million homes! How can there be that big of a error?
Submitted by Vinh Nguyen on December 28, 2011 - 5:39am.
Thanks, Matt and Sam for your thoughtful comments. Those who work with statistics know, data are sometimes inaccurate (due to various factors, thus there is a need to revise them from time to time) plus we have assumptions that also have to change over time. Please don't pick on NAR and disregards all the good things that it has accomplished this year and in the past to help real estate consumers and the professionals in the industry. US government's agencies revised their statistics and reports all the time!