Housing crash may be much worse than thought
Doubt undermines trusted data on home sales. And home prices slip again, near crash's lowest point.
This post comes from Marilyn Lewis of MSN Money.
Yikes. It might be even worse than you thought.
The real estate crash, that is.
"The housing crash may have been more severe than initial estimates have shown," The Wall Street Journal reports.
The source? It's the National Association of Realtors, a lobbying and industry group. Its analysts are reviewing their work to find out if they over-counted U.S. home sales as far back as 2007.
The NAR was inspired, apparently, by a recent report by CoreLogic, another analyst of home sales data. CoreLogic says the NAR may have overstated home sales -- by as much as 20%, according to the Journal. Post continues after video.
Why do we care? The Journal explains: "While revisions wouldn't affect reported home-price numbers, they could show that the housing market faces a bigger overhang in inventory, given the weaker demand."
In other words, if fewer homes actually were sold, there are more than previously thought hanging around still, clogging up the market, depressing prices and slowing the housing recovery.
Home prices still falling
But, wait! There's more bad news from the housing front today. The numbers are in on prices from December home sales. They aren't pretty.
The Standard & Poor's/Case-Shiller Home Price Index of 20 big cities shows prices fell slightly (0.4%) between November and December. That new level is "less than 3% above the low recorded in the spring of 2009, when there was widespread hope that the market was starting to recover," The New York Times says.
That puts home prices, nationally, at 32.1% below their peak, in 2006 and 2007. Only Washington, D.C., saw a monthly gain in December.
Robert Shiller, one of the report's founders, predicts continuing declines nationally of 15% to 25% before the bottom is reached, says the Times. Shiller's partner, Karl Case, thinks the bottom may be closer than that.
But enough of that story. Let's return to the flap over the NAR sales counts.
Theses are the numbers in dispute:
- NAR: reported 4.9 million sales of previously owned homes in 2010, down 5.7% from 5.2 million in 2009.
- CoreLogic: counts just 3.3 million home sales last year, down 10.8% from 3.7 million in 2009.
The Journal quotes Thomas Lawler, an independent housing economist who crunches housing data for hedge funds and big-time investors. (He answers reader questions about housing at The New York Times' Economix blog.) Lawler was previously a senior vice president for Fannie Mae. An expert, in other words.
"Downward revisions would show that 'this horrific downturn in the housing market has been even more pronounced than what people thought, and people already thought it was pretty bad," he told the Journal.
"This is a very important issue, and we are looking at it carefully right now," Lawrence Yun, the NAR's chief economist, said.
No one seems to be implying that numbers were massaged, cooked or manipulated. The point is that housing data is squirrelly, slippery and notoriously difficult to track.
Economists say any overstatement is the result of difficulty tracking data during market corrections. "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."
One of the reasons for varying counts is that each analytics company or agency goes at the job a bit differently. And they may get their sales counts from different sources.
Which one is right?
CoreLogic collects its sales numbers directly from property records obtained from local courthouses. The NAR obtains annual sales numbers from a statistical model that relies on housing counts from the U.S. Census Bureau and some other factors.
Under normal conditions, such extrapolations from the census and other sources work just fine as gauges of demographic changes. But these are not normal conditions.
For its monthly home sales reports, the NAR uses a sample of sales numbers from many of the 900 multiple listing services around the country. The problem with that is that not every home sale is reported to an MLS. The NAR allows for that but "the NAR could over-estimate sales if it hasn't properly adjusted for a smaller 'for-sale by owner' share," Yun told the Journal.
The NAR's approach has been under scrutiny recently, the Journal says:
Several economists approached NAR late last year with questions about its modeling. NAR economists promised to study the issue during a December conference call that included economists from the Mortgage Bankers Association, Fannie Mae, Freddie Mac, the Federal Reserve, the Federal Housing Finance Agency and CoreLogic.
Economists from the Mortgage Bankers Association said they became skeptical after the MBA's index of mortgage-purchase applications appeared to be a less reliable indicator of home sales. The index had been closely correlated to NAR existing home-sales data until 2007. Even assuming a high share of all-cash sales, purchase-loan application data suggests that home sales have been overstated by 10% to 15%, said Jay Brinkmann, the MBA's chief economist.
"If they are off by this much, this consistently, it would be sending the wrong signal to the market," said Mr. Brinkmann.
Despite all this, the Journal, at least, downplays the likely effect on the overall economy.
Realtors, lenders and other real estate-related businesses might feel the effect but "it isn't clear that (the revised numbers) would have a meaningful impact on the broader economy, which typically relies more heavily on new-home construction to drive growth."
More from MSN Money:
If the government decides to can Freddie and Fannie and over half of the current eligible market goes away and if the FED quits doing QE and interest rates spike to 10%, it makes difference, not just for home buyers buy derivatives buyers as well.
More to the subject than this cursory treatment. Gosh, I really liked it better at MSN when I could get such unorthodox commentary over at the message boards.
In any case, I'll check back here next month.
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