It's official: Housing market was sicker than we thought

Real estate agents are famous for putting a listing in the best possible light to close a sale. On Thursday, the industry's national trade association confirmed that its monthly data have been painting a rosier picture of the pace of home sales since 2007.

As reported in March, the National Association of Realtors has been overstating the pace of existing home sales by more than 16 percent. The trade group now says just 17.7 million existing homes were sold from 2007 to 2010, not the 20.6 million it originally reported. The NAR made no changes to its data on home prices.

In its announcement of the downward revisions, the trade group sought to downplay the impact of "re-benchmarking" the data lower.

“From a consumer’s perspective, only the local market information matters and there are no changes to local multiple listing service data or local supply-and-demand balance, or to local home prices,” NAR economist Lawrence Yun said in a release explaining the revisions.

The NAR's monthly sales data is a critical input for a host of widely-watched forecasts generated by public and private economists - from Wall Street to the Federal Reserve. Investors make big bets based on the data. Debates on government policy, from the White House to Capitol Hill, rely on this barometer of the health of the housing industry, a critical pillar of the U.S economy.

The revision shows that home sales were substantially lower than originally reported over the past three years.
But beginning about a year ago, the data reported by the NAR began diverging from the assessment of independent researchers. That began a lengthy reassessment of its data collection methods and analysis as the trade group met with government and private housing experts, including the Federal Reserve, the Department of Housing and Urban Development, the Mortgage Bankers Association, the National Association of Home Builders, government-owned mortgage companies Fannie Mae and Freddie Mac and CoreLogic, a California-based data firm that first raised doubts about the association's data.

It would not be the first time the NAR's economics team has overstated the health of the housing market. Following the housing market peak in late 2005, the trade group's forecasts remained upbeat well into 2007.

Thursday's downward data revisions confirm that the housing market has fallen further than originally thought. But the new numbers don't change the outlook for the market's recovery. That's because the revisions also lowered the NAR's estimate of the number of houses for sale by 18 percent, to 2.6 million from 3.1 million.

"The balance between supply and demand is the same," said Paul Dales, a senior economist at Capital Economics. "The revisions therefore hold no implications for either the previous, or future, path of prices."

The median price for an existing home fell 3.5 percent in November from a year earlier to $164,200, according to the NAR.

On Thursday, the trade group cited a number of factors that combined to skew the data upward. Since the housing market collapsed in 2007, fewer homeowners have opted to sell their house without a real estate agent. At the same time, more homebuilders have begun using the multiple listing services to find customers. Those shifts tended to inflate the number of sales captured by those MLS systems, which form the basis for the NAR's data collection.

The expansion of MLS services since 2007 has already created some regional overlap, with more than one MLS system listing the same property in some cases. That overlap lead to some double counting of sales, the NAR said.

The group also cited changes in the way the Census Bureau collects data, population shifts and noted that some sales were counted twice as homes were "flipped" shortly after they were purchased.

The "re-benchmarked" data show the pace of home sales was substantially slower from 2007 through 2010 than originally reported. The figure for 2007 was lowered 11 percent to 5.04 million; 2008 was lowered 16 percent to 4.11 million; 2009 dropped 16 percent to 4.34 million; and 2010 fell by 15 percent to 4.19 million.

The latest monthly data from the group show that existing home sales rose 4 percent in November to a seasonally adjusted annual rate of 4.42 million.

The NAR report follows news Tuesday that home builders are seeing a gradual recovery new housing starts and permits. Last month, builders broke ground on an annual rate of 685,000 homes, according to the Commerce Dept. That was a 9.3 percent jump from October and the fastest pace since April 2010.

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