Construction Industry Forecasts

Notes from Bernie Markstein - Dec 23, 2011

Bernie Markstein
Existing Home Sales - Down and Up
Bernie Markstein, RCD US Chief Economist

News Flash: The housing market has been really bad over the last four years!

Oh, wait, you already knew that? If you weren’t sure, the National Association of Realtors® (NAR) in a report released December 21 confirmed that observation by revising down their series for existing home sales going back to 2007. The revised sales numbers for the 2007 through 2010 period is down an average of 14.3%. The 2010 annual sales figure was revised down 14.6%, from 4.91 million to 4.19 million. These revisions have the cumulative effect of reducing the reported number of sales by 2.9 million over the four-year period.

For about a year there had been growing concern among housing professionals that the NAR’s existing home sales numbers were too high and seemed to be at odds with many other housing market measures. Early on, economists at the NAR acknowledged that there did appear to be a problem and were engaged in a benchmarking effort for the series that would address the problem, an exercise they go through every few years.

The Benchmarking Process
“Benchmarking” is a common process that involves examining  and incorporating updated data into an existing economic time series. Often, economic models must estimate data that is either unavailable or missing at the time the series is released. As part of the benchmarking process, these models are updated based on more complete data and the previously reported numbers are replaced with actual data when available. The benchmarking process may include other adjustments, such as the incorporation of changes in definitions or classifications of the underlying data. The government benchmarks a number of its economic series annually, including payroll employment and gross domestic product (GDP).

Why all the Revisions?
The NAR cited a number of reasons for the high number of revisions to its existing home sales report. These include:

  • Starting in 2007, a greater percentage of sellers used realtors than has been the case in the past, resulting in the NAR model overestimating sales by owners (sales by owner are not reported to the NAR)
  • Home sellers were (and still are) listing their homes on more than one multiple listing service (MLS), resulting in some double counting when sales were reported by those services
  • MLSs have expanded their geographic coverage, which means a greater percentage of sales were reported to the NAR than in the past. Since the NAR did not adjust for the increased coverage, the result was sales estimates that were higher than were actually occurring.


According to the NAR, despite the downward revisions, the monthly pattern of sales remains unchanged. Also, there has been no change to their median housing price series or their months’ supply of inventory numbers, although the level of inventories was revised down.

NAR Revisions at a Glance
The current NAR report, based on the new benchmarked series, shows the following:

  • Existing home sales increased 4.0% in November to 4.42 million at a seasonally adjusted annual rate
  • Condo/co-op sales were unchanged, while sales of single-family homes rose 4.5% to 3.95 million
  • Compared to a year ago, total November sales were up 10.9%, single-family sales 11.3%, and condo/co-op sales 6.7%
  • Cancelled contracts, mainly due to financing and appraisal issues, were reported by 33% of NAR members, the same as in October and up from 9% a year ago
  • Short sales and sales of foreclosed homes accounted for 29% of sales, up marginally from October’s 28%, but down from November 2010’s 33%
  • First-time buyers continue to be a large part of the market, accounting for 35% of sales in November


What Does it all Mean?
The NAR November existing home sales report is another piece of evidence that the housing market is improving. Although the downward revision of past sales is disheartening, it is not a real surprise for those who have followed the housing market and watched the lethargic pace of new single-family home sales.

However, let’s not look back at the bad news, but instead take this bit of good news forward with us into 2012.

What do you think about NAR's revisions? Let me know by posting a comment.

Existing Home Sales Revisions
  Millions of Sales
% Change


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