A statement by Lawrence Yun, chief economist for the National Association of Realtors as listed in a report on existing home sales caught my eye today.

From a consumer’s perspective, only the local market information matters and there are no changes to local multiple listing service data or local supply-and-demand balance, or to local home prices” said Yun.

On the surface, the statement seems incredulous. How can the national data be completely screwed up, in need of major revisions, if the local data is accurate?

I had a chat with Calculated Risk today regarding that statement by the NAR. Calculated Risk explains various ways the national data can be messed up even if the local data is accurate. It has to do with procedural errors in NAR methodology, extrapolating local data to national trends.

Major Procedural Errors

  • Sampling Error – Not all local data was used to estimate national numbers
  • Size Error – Local areas changed in size over time. If the size of a local office changed, that affected extrapolated results
  • Benchmark Error – Population figures were based on the 2000 census. 10 years between census reports is a lot of time.
  • FSBO Changes – The NAR had difficulty extrapolating trends given huge changes over time in “For Sale by Owner” homes going off then back on NAR listings.

Calculated Risk covers the revisions (with a nice set of charts), but not the discussion above in his post Existing Home Sales Revisions

When Did Housing Peak?

In our discussion, CR thinks as do I the Summer of 2006 top as shown by Case-Shiller is inaccurate because of Case-Shiller misses incentives such as “free” garages, pools, landscaping, and other upgrades and incentives that started in summer or Autumn of 2005. Moreover, Case-Shiller does not include condo sales, and condo prices started crashing summer of 2005.

I have the peak Summer of 2005, CR has the peak somewhere between summer of 2005 and Spring of 2006. We both agree it was a rolling peak that started slowly, then spread like wildfire mid-2006.

ECRI’s Recession Call and Track Record

I also chatted a bit with Calculated Risk on the ECRI’s recession call. CR brought the subject up, not me, and he is in general agreement with my interpretation in A Look at ECRI’s Recession Predicting Track Record

In regards to a double-dip or back-to-back recession ideas, so far CR has been correct. He did not see a recession in 2011 and one of the reasons was investment in real estate is at or near the bottom and will no longer be a subtraction to GDP.

Indeed housing was a net addition to GDP this year, primarily because of multi-family.

Where to From Here?

In regards to how long this will play out, I think a decade. CR is a bit more optimistic but shadow-inventory (REOs and foreclosures not yet listed) places downward pressure on home prices now. As prices bottom and start to rise, those hoping to get out at higher prices will add to further supply down the road.

Once housing prices bottom, it will not be a mad dash to new highs. “Someone who bought a house for $1 Million who can now only get $500,000 will likely not get back to even in our lifetimes” says CR , adding with a presumed grin, “it certainly depends on how old someone is now“.

Let’s just call it decades, admitting “local conditions can vary” and leave it at that.

Mike “Mish” Shedlock
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