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NAR’s Sales Count: Not News and Not Really Important

Last week, several people asked us to comment on how “important”  the “news” that the National Association of Realtors had miscalculated sales figures was. Two things: this is not news and we don’t necessarily think it is that important. Here is the original blog we posted on this issue back in February. – The KCM Crew

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However, NAR’s methodology is no longer current. The overstating of sales was caused by the continued use of this outdated methodology.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. Kurt Miller
    Kurt Miller says:

    Great article! While one could argue that NAR shouldn’t have been comparing census data to MLS data to begin with, at least I understand how the mistake was made. When people don’t know the real reason, they will invent their own, and those will always be worse than reality. Hence, the “conspiracy theories”.

    Reply

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  1. […] that NAR messed up reporting the numbers of home sale for the lst several years. According to KCM Blog the reason is they set a benchmark data from the 2000 census and meonthly changes in sales reported […]

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