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Wednesday, December 21, 2011

Impact of NAR Revisions on GDP

by Calculated Risk on 12/21/2011 03:48:00 PM

The NAR mentioned today:

For the total period of 2007 through 2010, sales and inventory were downwardly revised by 14.3 percent. The revisions are expected to have a minor impact on future revisions to Gross Domestic Product.
Several readers have asked about the impact on GDP. The answer is very little.

When a previously occupied home is sold, nothing is "produced" except some commissions and fees. So the only significant contribution to GDP is the brokers' commissions. Since the BEA uses the NAR existing home sales report to estimate brokers' commissions, commissions will be revised down for 2007 through 2011. Brokers' commissions are a component of Residential Investment.

The following table shows an estimate of these downward revisions. As an example, brokers' commissions in 2007 will be revised down to $76.9 billion from $86.6 billion, and Residential Investment and GDP will be revised down by the same amount (my estimate)

But real GDP annualized growth will mostly be unchanged for the last several years. Since GDP growth is the change from one period to the next, the most impact will come to years with the largest changes in the NAR revisions (from 2006 to 2007). It is possible 2007 will be revised down slightly. There will be no change to real GDP growth in 2011.

Impact of NAR revisions on GDP (Billions)
NAR Downward Revision0-11.1%-15.5%-16.0%-14.6%-14.4%
Brokers' commissions on sale of structures101.586.666.958.655.2 
Revised, Brokers' commissions 101.576.956.549.247.1 
Residential Investment761.9628.7472.4354.7338.1 
Revised, Residential Investment761.9619.1462.0345.3330.0 
Gross domestic product13,377.214,028.714,291.513,93914,526.5 
Revised, GDP13,377.214,019.114,281.113,929.614,518.4 
GDP Real Growth Rate2.7%1.9%-0.3%-3.5%3.0% 
Revised, GDP Real Growth Rate2.7%1.8%-0.3%-3.5%3.0%

Existing Home Sales in November: 4.42 million SAAR, 7.0 months of supply
Existing Home Sales Revisions
CoreLogic: Existing Home Shadow Inventory remains at 1.6 million units
Existing Home Sales graphs