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Home Prices Decline, Past Sales Data Overstated


The Standard & Poor’s/Case-Shiller Home Price index fell one percent in December. Prices fell in every market except Washington D.C. where the local economy is just humming along wonderfully. Prices in eleven of the twenty markets included in the index sank to post-bust lows: Atlanta, Charlotte, N.C., Chicago, Detroit, Las Vegas, Miami, New York, Phoenix, Portland, Ore., Seattle and Tampa, Fla.

“There’s just way too many homes out there relative to demand and we’re not going to see that change anytime soon,” said Joshua Shapiro, chief U.S. economist for MFR Inc.

Robert Shiller thinks price declines have another 15% to 25% to go, due to all the empty houses with no buyers, proposals to reduce the mortgage interest tax deduction being floated, the uncertain futures of Fannie and Freddie and Middle East unrest.

Case-Shiller also released its quarterly index covering all homes in the country. It showed prices fell 3.9 percent in the fourth quarter and 4.1 percent for all of 2010.

All of that may be the good news. The bad news is the Wall Street Journal reports that the National Association of Realtors may have been overstating existing home sale figures as far back as 2007.

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%.

If the Realtors have overstated sales, the existing overhang of unsold homes is even greater than what’s been thought.

In determining annual sales numbers the Realtors have been using 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,” reports the WSJ.

The model may have overstated the number of 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 Lawrence Yun, who is the chief economist at NAR and the one keeping an eye on the model.

It seems economists working in residential real estate began questioning the NAR’s numbers after their organizations’ data diverged from the Realtors’ numbers in 2007. Jay Brinkman, from the Mortgage Bankers Association, and also a chief economist, thinks the the NAR’s sales numbers have been overstated by 10% to 15%.

Nick Timiraos concludes his WSJ piece, “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…”

I’m no chief economist, but I’ll take a stab and say downward revisions won’t be positive.


Doug French

Douglas French is President Emeritus of the Mises Institute, author of Early Speculative Bubbles & Increases in the Money Supply, and author of Walk Away: The Rise and Fall of the Home-Ownership Myth. He received his master's degree in economics from UNLV, studying under both Professor Murray Rothbard and Professor Hans-Hermann Hoppe.

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