Steve's Real Estate Blog: February 2011

Thursday, February 24, 2011

WSJ article - NAR data may have over counted sales

By NICK TIMIRAOS

The housing crash may have been more severe than initial estimates have shown.

The National Association of Realtors, which produces a widely watched monthly estimate of sales of previously owned homes, is examining the possibility that it over-counted U.S. home sales dating back as far as 2007.

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Associated Press

The data, used by economists, investors and the real-estate industry, could be revised downward this summer.

The group reported that there were 4.9 million sales of previously owned homes in 2010, down 5.7% from 5.2 million in 2009. But CoreLogic, a real-estate analytics firm based in Santa Ana, Calif., counted just 3.3 million homes sales last year, a drop of 10.8% from 3.7 million in 2009. CoreLogic says NAR could have overstated home sales by as much as 20%.

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 December, NAR said that it would take 8.1 months to sell some 3.6 million homes listed for sale at the current pace, but the number of months it would take could be even higher if sales are revised down. Any revisions wouldn't have an impact on homeowners, but it could have consequences for the real-estate industry. 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," said Thomas Lawler, an independent housing economist.

NAR said the data, which are used by economists, investors and the real-estate industry to gauge the health of the housing market, could be revised downward this summer. Lawrence Yun, chief economist at NAR, wasn't specific about whether and by how much the revisions could reduce reported sales, and he raised the possibility that the CoreLogic estimates have understated the number of home sales. "This is a very important issue, and we are looking at it carefully right now," Mr. Yun said.

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."

Over the past decade, a growing number of housing-research firms have sprouted up, offering new ways to track home sales.

CoreLogic, which was spun off from First American Financial Corp. last year, measures sales by tracking property records through local courthouses. The firm says its data covers approximately 85% of all home sales tracked by NAR.

NAR, which is due to report January home sales on Wednesday, uses a sample of sales data reported by local multiple-listing services to calculate monthly changes in sales.

To produce estimates of annual sales, it uses a model that is benchmarked to the figures reported in the decennial U.S. Census. The model requires making certain assumptions for population growth and other measures in between the census surveys.

Those models could have over-counted sales due to recent consolidation among multiple-listing services, which has resulted in those firms having wider coverage of housing markets. NAR's tally could be distorted if the firms "are sending us more home sales because they have a larger coverage area, but without informing us" that their reach has grown, said Mr. Yun.

Because not every home sale goes through a multiple-listing service, NAR must also make additional assumptions. For example, it must estimate what share of transactions are "for-sale by owner," and the housing downturn has sharply reduced that segment of the market. Consequently, the NAR could over-estimate sales if it hasn't properly adjusted for a smaller "for-sale by owner" share, said Mr. Yun.

NAR typically produces revisions of home-sales data at the end of every decade based on the latest Census survey data. But because the 2010 Census didn't ask U.S. residents about home sales, NAR must devise a new way to build its home-sales model.

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.

Downward revisions in existing home sales could have an impact on real-estate related businesses, but economists said it isn't clear that they would have a meaningful impact on the broader economy, which typically relies more heavily on new-home construction to drive growth.

Write to Nick Timiraos at nick.timiraos@wsj.com

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WSJ article home pprices fall and sales increase

By NICK TIMIRAOS And JUSTIN LAHART

Home prices fell to new lows in 11 cities in December, the latest sign that the weak housing sector remains a soft spot in the U.S. economy.

Across 20 major metropolitan areas, home prices fell 1% in December from November, according to the S&P/Case-Shiller home-price index released Tuesday. The index has declined for five consecutive months, all but erasing the gains in home prices since the recession ended in June 2009.

The feeble housing report comes as other indicators suggest that the economy is gaining ground. Another report Tuesday showed Americans' attitudes on the economy growing more upbeat.

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The housing market faces the risk that millions of foreclosed properties will hit the market in coming years, putting downward pressure on prices if demand doesn't pick up.

Economists at Capital Economics estimate that for the current level of demand, there are 850,000 too many homes for sale. Robert Shiller, the Yale University economist who co-founded the index that bears his name, said Tuesday that there remains a "substantial risk" of another 15% or 20% decline in home prices. Many economists say another 5% decline is more likely and that the housing market should stabilize as economic growth accelerates.

Price declines in recent months have been driven by a rising share of distressed sales, including homes sold by lenders that have taken properties over from former owners. Banks are typically much faster to reduce prices and unload properties quickly than homeowners.

In Las Vegas, for example, the median price of previously owned homes fell to $109,000 in January, down 9% from a year ago, driven by sales to investors in low-end properties. Half of all homes sold during January were purchased with cash, and more than three-quarters of all homes were vacant when sold, according to SalesTraq, a local real-estate data firm.

Falling or flat prices can put pressure on the housing markets because they leave more borrowers underwater, or with homes worth less than the amount owed on their mortgages. That in turn can lead to more foreclosures and may also be hindering the labor market's ability to recover, because it makes it more difficult for people to take advantage of job opportunities.

John Gonzalez, a postdoctoral student at the University of Florida, has accepted a tenure-track teaching position in Kansas and has to choose between selling his Gainesville, Fla., condo at a loss, or becoming an "accidental landlord" and renting out the unit at a loss.

Mr. Gonzalez, 32 years old, owes $30,000 more than the current market value of the two-bedroom unit, which he bought with a no-money-down loan in 2006. He has applied at his bank for a loan modification, which would make it easier for Mr. Gonzalez and his wife to cover the costs of renting the unit, he says.

"We're not really ever going to get back the money on this place," Mr. Gonzalez says. "I'm not beyond renting, but it's one of those things that's really scary when you're not living in the same town."

Despite the housing market's woes, consumer attitudes are improving. In a separate report Tuesday, the Conference Board said that its index of consumer confidence rose to 70.4 in February from 64.8 in January. That was the highest level since February 2008.

"The broader news flow on the economy has been better, even if the housing market is in a slow bleed," says Bank of America Merrill Lynch economist Ethan Harris.

Mr. Harris says he expects home prices to creep lower over the next year or two, as distressed sales weigh on the market. Even as the rest of the economy improves and consumer attitudes brighten further, people will resist spending much. "It's an ongoing message to households to be conservative about your spending and rebuild your savings because you can't trust the housing market as a wealth-creating machine," he says.

Write to Nick Timiraos at nick.timiraos@wsj.com and Justin Lahart at justin.lahart@wsj.com