By Robert Freedman, senior editor, REALTOR® Magazine
In response to media coverage about the calculation of existing-home sales, NAR Chief Economist Lawrence Yun yesterday walked reporters through the association’s methodology for calculating its monthly EHS figures as part of his regularly scheduled press conference in Washington.
NAR each month collects home-sale data from a sampling of MLSs around the country. That monthly data is compared against the previous month’s data to derive the upward or downward shift in the home sales pace. Thus, if the participating MLSs report 5 percent fewer home sales, when all of their data is tabulated on a national basis and seasonal variations are accounted for, then NAR’s monthly EHS report reflects that.
To anchor its data, NAR every 10 years compares its figures to the findings of the decennial census, which up until 2000 sent out a “long-form” questionnaire to U.S. households to generate rich data sets on household activity, including home buying. In 2000, that long-form census identified the home sales figure at 5.2 million, and NAR “rebenchmarked” its EHS data sample based on that number.
Such periodic adjustments are standard among researchers to maintain the accuracy of any data series that relies on extrapolations from a baseline. In 2000, NAR adjusted its data by 13 percent to bring it into alignment with the census data.
NAR is now developing a new way to rebenchmark its data, because the Census Bureau no longer sends out its long-form questionnaire as part of its decennial census, leaving NAR without that data set to use as its rebenchmarking standard.
Yun said he is convening a panel of some 20-30 economists and others who follow home sales on a regular basis for their input as NAR puts in place its new rebenchmarking procedure. Depending on the procedure that’s used, NAR could rebenchmark its MLS data samples more frequently, possibly as frequently as every two years or even every year.
More frequent rebenchmarking could help minimize the statistical “drift” that occurs in any regular sampling of data. Yun said he can’t predict how much, or in what direction, EHS data has drifted since the 2000 rebenchmarking, but that some degree of drift is expected. Some MLSs have consolidated, markets are seeing fewer for-sale-by-owner transactions, and some sales might be appearing in more than one jurisdiction because agents are increasingly listing homes in more than one MLS: all of these are possible variables that could lead to drift in EHS data trends, Yun said.
Similar kinds of “statistical noise” leads to drift in home-sale data tracked by other entities, Yun said. For example, data samples that rely on FHA, Fannie Mae, and Freddie Mac closings don’t capture all-cash transactions, which today comprise more than a third of home sales. Mortgage purchase applications, though a very useful metric for directional movement on a week-to-week basis, had a huge upward drift in the 1990s, which would have implied quadrupling of home sales during that decade. And data that relies on court house recordings could be showing a downward bias because of the lag in recordings of auction sales, short sales, and foreclosure sales, among other things.
In the video above, Yun talks about NAR’s EHS calculation methodology and the development of a new benchmarking procedure.
By Kelly Killian, Manager of Editorial Development, REALTOR.org
NAR received the following e-mail last week from a Washington-state REALTOR®, and it served as a thoughtful and important reminder of why we — and all of you — do what we do:
I had a thought … I know for many years we had to fight to keep banks out of real estate and we, as an organization, spent a lot of money to hold them off. Given the events of the last five years, the mess with the mortgage companies and banks going out of business, I have tried to imagine if there weren’t any REALTORS® to fight that battle, how much worst this last 3-4 years could have been. I wanted to thank you for the work you do for our members and the spirit in which you do it for Americans and the fight for homeownership. I, for one, am proud to be a REALTOR® and gladly pay my dues to keep us all at work.
Indeed, working with Congress to keep banks out of the real-estate brokerage business, is just one of the very important policy accomplishments NAR and the many REALTOR® advocates and volunteers have achieved on behalf of all of our nearly 1.1 million members — and their clients.
Recently, NAR outlined some 50 key legislative and policy accomplishments in 2010 — just a portion of the work conducted on behalf of REALTORS® last year. Among the efforts that served to protect REALTORS®’ business interests, sustain residential and commercial housing opportunities, and eliminate barriers to credit were extending the closing-date requirement for the home buyer tax credit, ensuring the continued funding of the National Flood Insurance Program, and securing RESPA guidance from HUD.
And the work continues in 2011, with our efforts toward secondary-mortgage market reform, preserving the mortgage-interest deduction, and much more.
NAR Research has issued the following Q&A in response to some claims about the computation of NAR’s existing-home sales data.
NAR Existing-home Sales FAQ
Home sales measurements have shown to differ at times as reported by NAR and some outside organizations. Here are the facts and background you need to know.
Q: How are NAR home sales computed?
A: NAR collects sales data from numerous MLSs, with a reporting sample of about 40 percent. If data computes to be a 5 percent increase from one year ago then we say home sales rose 5 percent from one year ago.
Q: What about 5 million home sales? An increase of 5 percent is understood, but how is 5 or 6 million home sales computed?
A: A base figure is used from Census 2000 where one can compute how many homes were bought. If you recall there was a long-form of Census back then which asked questions about whether you moved or not and whether you bought a home. Based on this, one knows that 5.2 million existing homes were sold in 2000. Note that this benchmarking process does not use any data from MLSs. Hence, it is considered clean. With this base figure, we then apply the percent changes to sales obtained from MLSs. So if MLSs data addition say a 5 percent increase, then we would say there were 5.4 million home sales.
Q: How can NAR sales data drift away from true measure?
A: It is not definitive if NAR data has a measurable drift other than normal small statistical noise that may arise from not using all MLSs and from any data entry error or local MLSs sending wrong data to NAR. In statistics, one just assumes the positive and negative noises cancel each other out. However, it is possible for this statistical noise to drift mostly in one direction and hence cumulatively add up over many years. In our last benchmark in year 2000, we found the reported home sales had a 13 percent upward drift compared to what Census data implied. NAR then revised the past 1990s data to match up with the Census data.
Q: How are other home sales data computed?
A: Most other data comes from courthouse recordings. Generally, they make some assumptions about non-covered areas. Because of improved electronic recordings, they claim to capture more data and more quickly than in the past.
Q: When will the new benchmarking take place?
A: In 2010 Census, a long-form questionnaire was not used. Therefore, the Census no longer asked about whether people moved and bought a home. So another brand new benchmarking process is needed. NAR has already been in contact with all key housing economists in the industry and government agencies and a few in the academia about finding a new benchmarking process. We expect a new clean, agreed-upon benchmark figure by the summer of this year.
In addition, we will be determining a new way to re-benchmark on a more frequent basis, possibly annually to lessen any drift that can accumulate over time. This frequent re-benchmarking, rather than wait every 10 years, is needed since the Census no longer collects the long-form questionnaire. As with all benchmarking, we will be working with various outside housing economists to develop a new-agreed upon method.
By Robert Freedman, Senior Editor, REALTOR® Magazine
The fiscal year 2012 budget that the Obama administration released yesterday would pare back most housing and community development programs, including jobs-rich community development block grants, implement a planned hike in the annual FHA mortgage insurance premium, and even take a third stab at a twice-rejected proposal to trim the value of itemized deductions, including the mortgage interest deduction, available to upper-income households.
These are all important matters that will bear watching as lawmakers take up their budget resolution and decide which proposals to keep and which ones to scrap or modify. But one thing the budget doesn’t do is propose reducing the value of MID by changing it into a credit. That change to MID was one of the recommendations of the president’s bipartisan deficit reduction commission, which released its final report in December.
In fact, the deficit commission very much got short shrift in the budget proposal. Its signature recommendations, including scaling back entitlements by raising the age of Social Security beneficiaries, among other things, were left out, leaving those high-profile decisions for another day.
To be sure, the president’s budget wields a sharp knife when it comes to cuts. It proposes cuts to 200 programs, including the majority of the programs administered by the U.S. Department of Housing and Urban Development, which saw its budget cut by almost 3 percent. Most of the budget savings across the spectrum of government programs come from a five-year freeze on discretionary domestic spending (largely everything except military and entitlements), which is estimated to produce $400 million in savings. Continue reading »
By Brian Summerfield, Online Editor, REALTOR® Magazine
The National Association of REALTORS® took out a full-page ad in this past Sunday’s edition of the Washington Post to get across a simple but important message: Housing creates jobs, which America needs for a genuine, complete recovery. Indeed, much of the positive economic news that’s come out recently — even in real estate — has been tempered by the enduring high levels of unemployment. Although those figures have improved incrementally over the past couple of months, the unemployment rate is still more than 9 percent, well above historic norms, and when people who have stopped looking for jobs are factored in, it’s much higher.
The aim of NAR’s ad was to advise policymakers and Congress, in advance of the release of President Obama’s Fiscal Year 2012 budget today, that certain changes to the mortgage interest deduction or government involvement in the secondary mortgage market — however well-intended — could have disastrous consequences for the economy. Conversely, by supporting policies that foster home ownership and purchases, they can help create the necessary conditions for a turnaround.
(Note: There is a provision in the 2012 budget that would limit the value of all itemized deductions, including the mortgage interest deduction, to 28 percent for taxpayers in higher brackets — households earning more than $250,000. The proposal is similar to a provision included in last year’s budget proposal, which was rejected by Congress.)
In fact, according to NAR, for every two new houses sold, a job is created. This argument rests on measuring gross domestic product (GDP) as the sum of all income. NAR estimates that each existing-home sale at the median price creates $30,792 because of commissions, fees, moving expenses, furniture, and a “multiplier effect” due to reinvestment of capital from a home sale into the economy. For a new-home sale, nearly $28,000 more is added to that because of spending on materials and labor for construction. Continue reading »
By Robert Freedman, Senior Editor, REALTOR® Magazine
The Obama administration puts the emphasis on privatization with a federal backstop as it outlines alternatives for replacing Fannie Mae and Freddie Mac. NAR wants to be sure affordable 30-year, fixed-rate and other safe mortgages remain available. It also expresses concern over a part of the report that could lead to increased fees above what would be affordable for middle-class households.
The Obama administration in its long awaited report to Congress on replacing Fannie Mae and Freddie Mac says it wants to strike a balance between a fully privatized conventional mortgage finance system and a fully nationalized system, and in that spirit outlined three alternative approaches to what should come after the two secondary mortgage market companies go away.
In its report, called “Reforming America’s Housing Finance Market” and released this morning, the administration divides the three options into degrees of privatization:
- Largely private. The only government involvement being the promotion of mortgage financing for low-income households through FHA, VA, and USDA (rural home ownership).
- Hybrid with a federal emergency role. Along with the existing roles for FHA, VA, and USDA, the privatized system would be backstopped by a federal mortgage insurance facility that ramps up to scale only in times of credit crisis.
- Hybrid with full-time federal reinsurance. The otherwise privatized system would include a standing federal catastrophic reinsurer for private guarantors of mortgage-backed securities.
The administration isn’t specific about whether it recommends one of the three approaches or a mix, but the report makes it clear that administration officials are seeking some type of hybrid approach. Full privatization, as outlined in the first option, has the virtue of moving the federal government out of the conventional housing market, but it would likely make it “more difficult for many Americans to afford the traditional pre-payable, 30-year fixed-rate mortgage,” the administration says. That’s a statement that closely parallels what NAR says in its policy position on GSE reform. Continue reading »
By Robert Freedman, Senior Editor, REALTOR® Magazine
Sen. Johnny Isakson (R-Ga.) is drafting legislation that would phase out the federal backstop role in the secondary mortgage market over 10 years while leaving a private company that’s created to replace Fannie Mae and Freddie Mac with a hefty reserve fund to cover any future catastrophic market events so the federal government doesn’t have to step in.
Isakson outlined his plan in broad strokes to hundreds of politically involved REALTORS®, who were in Washington, D.C., on Wednesday to learn about and to give input into NAR’s 2011 federal legislative and regulatory agenda.
Isakson’s proposal is likely to be just one of many that will be introduced in the legislative session ahead to reform Fannie Mae and Freddie Mac, the two government chartered secondary mortgage market companies that have been under federal conservatorship since the mortgage crisis.
The Obama administration is expected to submit its own plan for reforming the two companies, kicking off a comprehensive debate over how to ensure a robust conventional mortgage market going forward.
Currently, Fannie Mae and Freddie Mac are involved in more than half of the mortgage market (and FHA about a third), but there is widespread agreement within the administration, Congress, and industry groups that the companies must either be replaced or reformed so that the secondary market is no longer characterized by private, profit-motivated companies that receive taxpayer-funded support in the event of collapse, as happened in the wake of the financial crisis.
Isakson said he envisions the companies being replaced by a new entity, which he tentatively called the Mortgage Security Agency, that would be backed 100 percent by the federal government during its first year. It would generate money for reserves funded by a 50 basis-point fee on the mortgages it handles. For each of the next nine years, the federal guarantee role would be reduced by 10 percentage points until year 10, when the federal backing would stop completely. The agency would retain its reserve fund, which would function as its backstop in the event of a financial crisis.
“We have to get the government out of the sponsorship of business, but we can’t do it overnight,” he said.
By Robert Freedman, senior editor, REALTOR® Magazine
If you sell real estate you spend a lot of time in your car, and then at night you go home and plug your car into a socket in your garage and recharge its battery for another day. Well, maybe that’s not what you do today, but wait a couple of years and maybe that’s what you’ll be doing. After all, the new Chevy Volt is hitting markets now and the reviews have been good.
But electric cars aren’t the only thing in the automotive world that’s getting a lot of buzz these days. Safety innovations, new stylings, new performance levels: there’s a lot going on. And there’s also a lot that’s new in the ways you can outfit your car, SUV, or truck to really make your vehicle an extension of your office.
The innovations sweeping the auto world make it an appropriate time to take a comprehensive look at what’s new with cars from the perspective of your business. So, we’re hosting one of the country’s foremost automotive journalists in a webinar in which he’ll walk us through today’s automotive terrain.
Paul Eisenstein, publisher of TheDetroitBureau.com and a contributor to Motor Trend, The Economist, Wired, Daily Beast, and MSNBC, among other publications, will look at what’s new in 2011 — and 2012, and how to balance safety, image, and performance in your choice of vehicle.
He’ll also talk about productivity features that can help you conduct business outside the office, what’s the latest on battery-powered vehicles, and how to negotiate a good deal on your next vehicle.
The webinar is Thursday, Feb. 24, at 3 p.m., Eastern Time. It lasts an hour, and our plan is to reserve the last 10 minutes or so for Q&A.
We’ll also hear from Ashley Del Ponte of the Avis Budget Group, our webinar sponsor, who’ll talk about the deep discounts in rental cars available to REALTORS® right now (35 percent off at Avis and 30 percent off at Budget) and the host of new things going on in the rental side of the market.
It’s really an exciting time in the automotive world. With the Volt, the Nissan Leaf, and the Tesla sports car, among others, plugging your car into a garage socket at night is no longer an idea waiting to happen; it’s actually happening right now.