Did "Pending Homes Sales" really fall or is this a case of NAR "data envy?"

by Tim Herriage

Did "Pending Homes Sales" really fall or is this a case of NAR "data envy?"

by Tim Herriage

by Tim Herriage

8-16-pending-sales-data-correxThe media dutifully announced an August 2016 slow down in pending homes sales of 2.4 percent in bold black headline type normally reserved for a headline announcing a Declaration of War. The National Association of Realtors (NAR) press release behind this headline states for third straight month this pending sale drop was caused by meager inventory and accelerating prices. It is the second lowest month in 2016. The July index number was revised and now these so-called pending home sales are down 0.2 percent compared to August 2015.
 
HEADLINES VERSUS HISTORY
Influential SoberLook.com (and The Daily Shot – a graphical economic blog) pushes back hard explaining that “the result from the NAR is simply wrong as everyone knows U. S. home sales are extremely seasonal. The NAR does a terrible job in their “seasonal adjustments” – often making month-to-month movements meaningless. The association should learn from the energy industry which constantly deals with seasonal patterns” (such as increased travel, seasonal driving patterns, summer versus winter gas blends, refinery maintenance, etc.)
BETTER NEWS THAN REPORTED
The Daily Shot continues, “When comparing the index with the previous two years, without silly season adjustments, pending homes sales are actually doing well for this time of year. August 2016 and year-to-date pending home sales are ahead of the previous two years.“
NAR & “DATA ENVY”
I have watched the NAR and followed how they publish housing data for the last fourteen years after spending five years immersed in Wall Street traded asset reporting. The NAR has a severe case of “data envy.”
Let me explain: I have just returned from a trip to Europe and the joke in most major cities is the competing height of the Roman Catholic or Protestant church steeples. This based on who built first. “Steeple envy” led to the latter church having a higher steeple, just because they could.  Sadly the NAR has gotten into the reporting competition with Wall Street analysts (e.g. S&P, Corelogic CASE Shiller and others,) not understanding the metrics and trading pace of commodities. These metrics do not fit. Houses as an asset do not compare, whether it is value, utility, tradability or measurement, period.
WHAT DOES THIS MEAN TO INVESTORS?
Home sale data is nowhere near as exciting as the ups and downs of daily stock, bond or fund trading data, so in an effort to be relevant the NAR has unwittingly created artificial metrics or representations that misstate reality. And that’s just the start of the disconnect with theoretical national housing numbers versus real local data effecting specific housing market, neighborhood or house performance. National data makes for dramatic headlines that serve no one as unlike stocks, bonds and funds, a house is not a tradable commodity that can be bought or sold on a phone call or web transaction. Add the fact that the NAR, as an organization, is in denial about investors who make up nearly 30% of their annual customers and this further muddies the outcome.
This is another case of taking media headlines on housing with a grain of salt. 2020 REI is expert in understanding this snapshot data, where it fits in a data series and market context and then what these trends mean to you and your portfolio. For advice and help……

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