You might have missed the news because it happened over the holidays last month, but the National Association of Realtors put out home sales data for November and also revised its sales numbers for the past several years going back to 2007.
Yikes! Several people in the local real estate market raised eyebrows over this, and NAR said that the error, which was a 14.6 percent downward revision of national home sales for 2010, was due to a change in the actual number of for-sale-by-owner home sales.
A divergence developed over time between sales reported by MLSs and sales determined by a U.S. Census benchmark; the variance began in 2007. Reasons include growth in MLS coverage areas from which sales data is collected, and geographic population shifts. “It appears that about half of the revisions result solely from a decline in for-sale-by-owners (FSBOs), with more sellers turning to Realtors® to market their homes when the market softened. The FSBO market was overwhelmed during the housing downturn, and since most FSBOs are not reported in MLSs, national estimates of existing-home sales began to diverge based on previous assumptions,” [NAR’s chief economist Lawrence] Yun said.
So what should we make of this downward revision — which is no small revision? Does it mean home sales and the real estate economy is far worse than we thought? Or does it really not matter that much since we’ve been tracking our monthly slight improvements toward the end of the year anyway?
I asked our local Multiple Listing Service, MRIS, and its subsidiary, RealEstate Business Intelligence, to give us some local interpretation. John Heithaus, MRIS’s chief marketing officer, offers his take:
NAR’s December Revisions — And Why They Don’t Matter To The Local Market
John L. Heithaus, Chief Marketing Officer, MRIS
Louis Brandeis, one of the most influential Supreme Court chief justices once said, “I abhor averages. I like the individual case. A man may have six meals one day and none the next, making an average of three meals per day, but that is not a good way to live.”
While perhaps not intended to be applied to real estate, Brandeis touched upon one of the most critical aspects of the real estate market today: Statistics can be misleading if misapplied or misunderstood — or both.
A few weeks ago, the National Association of Realtors (NAR) announced a December 2011 revision of its benchmarking statistics in consultation with a number of housing authorities including the Federal Housing Finance Agency, the Federal Reserve, and the Department of Housing and Urban Development, as well as outside housing economists. The revision will result in changes to reported median housing prices over the past three to five years and for some, may serve as a shock to an already fragile national housing recovery.
While we empathize with our colleagues at NAR and believe that their aim was true and intentions proper, the fact is that the revised statistics just don’t matter to the local real estate market for a number of fundamental reasons.
First, real estate is local — in fact, micro local — today and into the future. There is no “D.C. Real Estate Market” per se, it’s a collection of ZIP codes, neighborhoods and sometimes even smaller neighborhoods within them, each with its own unique “fingerprint” and factors that can affect real estate values dramatically.
Relying on national real estate data is like relying on a national weather forecast — it just doesn’t work on a local level. While trends are indeed connected and somewhat linked in a “domino effect,” offering insight into larger trends, their value is more for the people of Wall Street than Main Street.
To offer some perspective to the NAR stat revisions, our team at Real Estate Business Intelligence pulled the following chart to offer a five-year look at median sales prices in local markets:
Third, these retrospective statistics are of limited value to the local consumer, similar to last week’s IBM stock price. The best way to navigate and understand all of the statistics available to consumers is by engaging the services of a local real estate professional. A recent consumer survey conducted by NAR showed that an increasing number of buyers and sellers have sought out the assistance from real estate professionals vs. “going it alone,” recognizing that in this market especially, all real estate is local, stats can be misapplied and the complexity of the transaction requires professional guidance and facilitation.
Brandeis’s quote — regardless of its original intent — offers a common-sense approach to statistics and is certainly a reminder that savvy consumers can make the best decisions when given the most relevant and factual information. Leave assumptions, averages and national “headlines” for another day.