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Friday, January 28, 2011

Lawler: Downward Revisions Coming to Existing Home Sales?

by Calculated Risk on 1/28/2011 03:45:00 PM

This is from housing economist Tom Lawler (CR Note: I probably jumped the gun on the timing of the major revisions, but I believe they are coming):

As many readers may recall, over the last year and a half I have noted numerous times that the NAR’s estimates for existing home sales appear to have understated the decline in existing home sales since 2006, with the “gap” increasing from 2007 through 2009. The basis for that assertion was that existing home sales based on property records in some key states declined materially more than did the NAR’s estimate of existing home sales in those states. In addition, CoreLogic’s estimates of existing home sales based on property records in its database (which covers “over 80%”of the US housing market) show materially larger declines since 2006 than do the NAR’s estimates.

The NAR is aware of these “discrepancies” and has been since at least 2009, but changing its methodology is not a trivial task. However, reportedly the NAR (working with others) has been looking into this issue, and is exploring whether it needs to change its methodology to get better estimates of “actual” existing home sales.

Late last evening CalculatedRisk wrote that

‘The NAR is planning on releasing revisions for the past three years (2008 through 2010) on February 23rd along with the January existing home sales report. Many housing analysts expect these revisions to be significant - and to be down. Assuming the revisions are down, this will also reduce the "distressing gap" between existing and new home sales.’

Now it is true that the NAR plans to release revisions to it monthly existing home sales data for the past three years on February 23rd. However, it ALWAYS revises its monthly data at that time of year each year to reflect annual changes in seasonal factors. I’m not at all sure that the NAR will also be ready next month to revise its existing homes sales data based on a new methodology – though ultimately I expect it will do so.

To give one an idea of what such a revision might ultimately look like, below is a table showing the NAR’s estimate for existing home sales from 2006 to 2009 versus CoreLogic’s count of existing home sales from its property records database. Full year 2010 data from CL are not yet available; in addition, CL’s data for the past several months (through October) will be revised upward as new data from county recorders become available. (The CL data include “normal” existing home sales, REO sales, and short sales). Also shown are “grossed-up” CL estimates assuming that the NAR’s existing home sales estimate were “correct,” [in 2006] which would imply that CL’s database covers about 84.25% of total existing home transactions. That assumption, of course, may not be correct, but I’m showing the data that way anyway.

Existing Home Sales (thousands)
YearNARCoreLogicGrossed-up CoreLogic

One reason for the NAR/property records sales estimates gaps appears to be that since 2006 there was a cyclical increase in the share of home sales through local MLS. This reflects both the greater difficulty sellers had in selling homes, as well as the increased use of the internet by buyers in their home search.

CR Note: This was from housing economist Tom Lawler.