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CoreLogic DID NOT Expose a Conspiracy

“CoreLogic Blasts NAR for Overstating Home Sales”

If you looked at this headline from a recent UPI article, you would think that CoreLogic attacked the National Association of Realtors (NAR) for purposely misleading the public regarding the real estate market by misstating the number of annual home sales. Some have mentioned the word ‘conspiracy’. Others have suggested a federal investigation. Let’s take a more in-depth look at the situation.

Did CoreLogic claim the NAR numbers were inaccurate?

Yes. In CoreLogic‘s most recent monthly report, which was five pages long, there were two paragraphs addressing the issue:

Although it’s been widely reported that the National Association of Realtors’s (NAR) existing home sales data fell only 5% to 4.9 million in 2010, down from 5.2 million in 2009 and flat relative to 2008, the CoreLogic data indicates otherwise…CoreLogic existing home sales data did not experience an increase in 2009 and that sales fell again slightly in 2010.

Historically, the CoreLogic existing sales data have covered about 85% to 90% of all NAR’s existing home sales data. However, in 2006 NAR’s sales data became elevated relative to the CoreLogic, MBA, HMDA and Census sales related data, and that trend has continued and become more pronounced through 2010…Net, NAR’s existing home sales data are overstated by about 15% to 20%.

Did NAR intentionally mislead the public?

No. They have always been totally transparent with their methodology which they define at the bottom of every Existing Homes Sales Report. Even CoreLogic attests to this in a Wall Street Journal article on the issue:

“This is an economic data issue, not a gaming-the-numbers issue,” said Sam Khater, senior economist at CoreLogic. “Any time you get big shifts in the market, the numbers go haywire for a bit.”

However, NAR’s methodology is no longer current. The overstating of sales was caused by the continued use of this outdated methodology. Let’s take a look at NAR’s explanation. They calculate whether sales were up or down based on data collected from MLSs across the country:

NAR collects sales data from numerous MLSs, with a reporting sample of about 40 percent. If data computes to be a 5 percent increase from one year ago then we say home sales rose 5 percent from one year ago.

Statistically, this is a rather large sampling to work from so there is no problem with this part of their equation. The question is: What is the base number of sales they go by? If there is a 5% increase, what number do they use to add that 5% to in order to give us total sales (ex. 5.4 million units).

NAR explains:

A base figure is used from Census 2000 where one can compute how many homes were bought. If you recall there was a long-form of Census which asked questions about whether you moved or not and whether or not you bought a home. Based on this, one knows that 5.2 million existing homes were sold in 2000. Note that this benchmarking process does not use any data from MLSs. Hence, it is considered clean. With this base figure, we then apply the percent changes to sales obtained from MLSs. So if MLSs data addition says a 5 percent increase then we would say there were 5.4 million home sales.

The challenge came because this benchmark number was no longer accurate. The ratio of sales being done through MLSs since 2000 has increased significantly. Therefore, just because MLS sales showed an increase no longer meant that overall sales actually increased. It could just reflect an increased percentage of deals being done by the MLSs. The original methodology is now flawed. CoreLogic addresses this in their report:

There are several reasons for the divergence, including benchmarking drift, more sales going through MLS systems due to consolidation and a lower share of for sale by owners (FSBO) home sales.

Should NAR have discovered this earlier and made the necessary adjustments? Probably. Was there anything sinister in the fact they didn’t? We don’t believe so.

How will NAR correct this situation?

NAR must now deal with two issues:

  • How to correct the current situation as quickly as possible
  • How to make sure it doesn’t happen again

They are addressing both issues:

In 2010 Census, a long-form questionnaire was not used. Therefore, the Census no longer asked about whether people moved and bought a home. So another brand new benchmarking process is needed. NAR has already been in contact with all key housing economists in the industry and government agencies and a few in the academia about finding a new benchmarking process. We expect a new clean, agreed-upon benchmark figure by the summer of this year.

In addition, we will be determining a new way to re-benchmark on a more frequent basis, possibly annually, to lessen any drift that can accumulate over time. This frequent re-benchmarking, rather than waiting every 10 years, is needed since the Census no longer collects a long-form questionnaire. With benchmarking, we will be working with various outside housing economists to develop a new-agreed upon methodology.

Bottom Line

There was no conspiracy being perpetrated. Just a degree of sloppiness. Should we tolerate this? Of course not. The good news is we won’t have to. The accuracy of housing data is getting more reliable every day. And the companies which profit from distributing this information will always strive for a greater degree of accuracy. They will also continue to keep the competition on their toes; just like CoreLogic did with NAR.


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3 replies
  1. brad
    brad says:

    It’s one thing to make a mistake, but to be off by 20-25% is more than “a degree of sloppiness”. These guys have been doing this for a long time, and putting this information together is nothing more than a database program, where information comes in and calculations are made…it’s that simple.

    Where there is a transparency issue, is that the report fails to show exactly where the data came from. Everyone knows that the housing market is local, and even within a particular local there could easily be numerous sub markets, where one is doing well and the other is horrible.

    For a trade association o be accurate and fair, and to avoid any possible conflicts of interest, all the data needs to be made available for all to review.

    I’m sure the NAR’s intentions are good, but they have always been suspect with their numbers. Even when the market was crashing they had a different outlook on things. And if their data is to be trusted, then how couldn’t they see the market crashing years in advance?

    We [Realtors] need to be looked upon by the public beyond reproach. We can’t allow anyone, even the NAR, to put our honesty and integrity into question.

    If the NAR is off by the % indicated by the CoreLogic figures, then shame on them, and heads need to role.

    Reply
  2. Ryan
    Ryan says:

    NAR- you can make some scary comparisons to the Fed. Gov. Both huge bureaucratic machines that are completely out of touch with the people/members they are supposed to serve. Self preservation seems to be of paramount concern for both. Fed and NAR have to deal with national, state, and local markets all with their own agendas.
    The saddest part of this story is than apparently NAR doesn’t have the ability to provide accurate numbers. Are you kidding me? A 40% sampling? Zillow, Trulia, and other portals have more data and provide more compelling information than our NAR.

    Reply
  3. brad
    brad says:

    I need to follow up my own comment.
    I just checked out the WSJ article you pointed to, and found that my comment about the need for us to be beyond reproach is shown with the comments that are being made regarding the article.

    We have a problem, and it’s the NARs fault as well as our own.

    Steve, this goes back to your post about being an expert. But one of the things that goes along with becoming and expert is to be a TRUSTED advisor, and the public doesn’t trust us…and stunts like this with the NAR hurts more than it helps.

    Read what people are saying about us. I understand the reason for the negative comments.

    Steve, this is a BIG deal, and you should be a lot more mad about this than you’re showing. This stuff continues to erode the confidence people have in us, or it fortifies their already negative views.

    We can’t keep taking it on the chin for the NAR

    Reply

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