Rebenchmarking the Existing Home Sales Data
By NAR Research Staff
On December 21, 2011, NAR announced the results of a year-long rebenchmarking process for existing-home sales (EHS) data. The last such EHS rebenchmarking was conducted 10 years ago.
It is important to note that all major statistical data series go through periodic reviews and revisions to ensure that sampling and methodology keep up with changes in the market. All economic data should undergo third-party validation, if possible. Because nearly all measurements make assumptions, any
changes related to those underlying assumptions will lead to a drift in the measurement. One such measurement is that for Gross Domestic Product (GDP) – produced by the Bureau of Economic
Analysis – and it undergoes frequent revisions. For example, it was found in 2010 that the economic downturn of 2007 and 2008 was much sharper than initially thought. Jobs figures are also revised from time to time. In fact, the Bureau of Labor Statistics provides two separate employment data sets which
utilize different methodologies, while noting the strengths and weaknesses of both methods. In October of 2011, one BLS survey reported 140.8 million people employed, while the other reported 131.7 million people with jobs. (Measuring “true” unemployment is said to be even more difficult.)
NAR Research has regularly examined its housing statistics ever since it began collecting such data. Factors such as population changes in sampled areas, growth in MLS coverage areas, declines in for-sale-by-owner transactions, and some individual sales being recorded in more than one MLS have contributed to an updrift in the figures over the past few years. The rebenchmarking ensures more
accurate and reliable information.
NAR’s home sales figures were revised because there appeared to be a notable upward drift in the data
compared to other data measurements such as courthouse deeds records. (Note, there were not changes to median home prices either nationally or across regions.) Remember that NAR’s monthly
home sales data are based on feeds from Multiple Listing Services across the country because they provide very timely information about recent trends. People want to know what is happening in the
market as quickly as possible, rather than waiting several months or even several years, which would be the case if one wanted to gauge housing market trends purely from courthouse records or the Census data. However, there is a drawback to relying on home sales data only from the MLSs because there
are home sale occurrences that are not accounted for in the MLSs.
Here’s an example. Let’s say there are 100 total home sales in a community in a certain year; 80 of those homes were sold by REALTORS® via an MLS, while 20 were for-sale-by-owner (FSBOs) transactions. Assume the next year the total home sales did not change and remained at 100. But this time, more
homes were sold through an MLS (say 89) with only 11 FSBO transactions. From a total market point of view, there was no increase in home sales. However, from the MLS point of view, home sales rose 11 percent. NAR relies primarily on the MLS data feed for its monthly statistics, and so the increase would
also have been reported as 11 percent. Because there have been substantial declines in FSBO transactions since 2007, capturing those sales is vital for a more accurate picture of the housing market.
Another example is when homebuilders sell homes directly without seeking assistance from a REALTOR®. In the recent years of a tough housing market, homebuilders have been listing homes on the MLSs and providing commission income to REALTORS® who bring clients. Some MLSs are able to clearly distinguish this kind of home sale as a new property rather than as an existing home. Consequently, NAR would not include such new home sales in the tally. But other MLSs do not provide a distinction; inevitably some of the recorded home sales are likely to be newly constructed homes. (New home
sales are captured by the Census Bureau and reported monthly. Visit www.census.gov for more information.)
Why It Matters
Trends in real estate agent-assisted transactions certainly matter to real estate professionals. But from a public policy point of view, total home sales – not just those that used a real estate agent – are important. Discussions of national housing-related policy issues like proposed changes to the mortgage
interest deduction or the homebuyer tax credit stimulus have to take into account the impact on all home sales and not just agent-assisted transactions. Even the general inventory absorption patterns are determined by overall home sales and not just agent-assisted ones. So reporting on only the MLS home sales count can bring about a misleading analysis of the impact of such national policies – yet another important reason for rebenchmarking from time to time.
The Trends Remain the Same
The strong home sales surges that were observed in the final month of the home buyer tax credit and the subsequent sales slump in the immediate months afterwards are still evident in the revised figures. Other characterizations of market changes from month-to-month also exist after the rebenchmarking. So even with the upward drift, the information about falling, rising, or stabilizing trends still holds true and provides key information about market direction. The rebenchmarking process just makes the data much better not only in regards to the direction of sales but also to the level of sales.
Home Prices – No Change
There was no revision to NAR’s median home price statistics from the rebenchmarking. In terms of the
statistics, home price is what matters to consumers – the price of their home (for sellers) and the price of the home they want to purchase (for buyers). Still, NAR is looking at how it captures home price trends. For home price information, generally a repeat price index will provide a better reading on price changes rather than the median price. The Federal Housing Finance Agency (FHFA), Freddie Mac, CoreLogic, LPS, and Case-Shiller are among the data sources for such a repeat price index.
One drawback to these measures is the time lag in obtaining the data. NAR’s median price series provides good information about the type of homes being sold in a given month, although at times it can be misleading if people view it as measuring price change trends. Given some weaknesses in the proper interpretation of median price, NAR has been exploring a way to create the most timely repeat-price index using MLS live feeds.
NAR has been the source of key housing measurements for many years. The Federal Reserve, many government agencies, Wall Street firms, real estate practitioners, and consumers have looked to NAR to provide this important information about trends in home sales. As such, NAR consistently strives to
provide the most accurate reading of the housing market conditions by undergoing necessary rebenchmarking processes as needed by working closely with housing economists from government agencies and private organizations to develop the latest methodology.
The recent drift was partly due to data error accumulating over several years. One way to lessen the drift is to do more frequent rebenchmarking and NAR will be re-setting the data every year moving forward, which should greatly lessen the drift. In the past, one had to rely on Decennial Census data (every 10 years). Now, with improvements in other Census data collection about movements of people and from better coverage from courthouse deeds, an annual rebenchmarking process looks to be feasible.
NAR will come out with state-level rebenchmarked figures in February. NAR’s state-level figures will be based on third-party data, mostly from the Census information about people moving. (In general, all private industry data that is considered an important economic indicator should go through a third-party
validity check, if possible.) The Census-based rebenchmarked home sales figures contain non-MLS home sales, such as FSBOs. So NAR’s (Census-based) data and the MLS data will not match perfectly in terms of levels, though the market swing characterizations from quarter to quarter would largely be the same as before.
Impact on Consumers
For both buyers and sellers the newly revised national data has no impact, because only very localized
data matters to consumers making decisions. The national data is important for policymakers to measure the broad strength and weakness of the housing market as they impact the national economy. For most consumers, REALTORS® who are expert in their local markets can help consumers with the local data.
More information about the rebenchmarking (including more details about the methodology and the challenges faced in collecting the data) is available. Among the resources available are a detailed QA
session with NAR Chief Economist Lawrence Yun, as well as the revised figures. Visit the following web sites: