[NAR] October Existing Home Sales Conclusion Result Is Wildly Misleading
Posted by Jonathan J. Miller -Monday, November 21, 2011, 12:39 PM
6 Comments
[click to expand]
It’s been nearly a year since I got enough energy to talk about a National Association of Realtors Existing Home Sales release. While their editorial side of the association is very good, the research side continues to issue information that simply misleads their agents and the public.
Here’s the release:
Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose 1.4 percent to a seasonally adjusted annual rate of 4.97 million in October from a downwardly revised 4.90 million in September, and are 13.5 percent above the 4.38 million unit level in October 2010.
To those in the real estate trenches, this is confusing. Perhaps it is some sort of skeptical breath of fresh air in a cauldron of bad economic news? The media is confused using the word “unexpected” a lot and agents are confused because this is NOT what is happening on the ground.
Doesn’t it seem odd that the rate of contract failures nearly doubled, yet sales increased? Not logical.
A higher rate of contract failures has held back a sales recovery. Contract failures2 reported by NAR members jumped to 33 percent in October from 18 percent in September, and were only 8 percent a year ago, so we should be seeing stronger sales,” Yun added.
The reason for all this gobblygook? NAR Research continues to over emphasize “seasonally adjusted” (methodology is not disclosed) results in a market that has been subjected to unprecedented external influences such as tax credits and downwardly managed mortgage rates.
No seasonal adjustments [black line]
In the above chart, the orange glow overlay on the black line reflects non-adjusted sales activity annualized from August to October over the past 3 years. The latest segment shows a sharp decline in sales relative to the prior 2 years. That is what real estate professionals and consumers are generally feeling since that is what is actually happening across the country.
Seasonal adjustments [red line]
The seasonally adjusted red line has been slowly eroding in 2011 and a headline saying “October Existing-Home Sales Rise, Unsold Inventory Continues to Decline” is completely out of context. Inventory is declining because it always declines in the last several months of the year.
Contrary to the institutional culture baked-in over at NAR Research, this simply creates more mistrust from the membership and consumers – and more importantly, it does not help agents sell more properties, the key reason for the existence of this trade group.
Please stop.
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So Jon…how do you really feel about this?
“Seasonal” numbers do tend to muddy the waters a bit in real estate reporting. I found that true in various foreclosure reports to. And I could never really figure out whether “foreclosure season” was before or after “wabbit season.”
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Great piece Jonathan. Thanks for the insight. I linked to it in a piece I did today (http://thebasispoint.com/?p=14972) addressing the 33% not closing stat. I’m seeing higher-than-normal cancellations as a lender in SF.
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