Dan Krell, Realtor®
DanKrell.com
© 2012

Did your teacher ever grade on a curve, where test scores are “weighted” based on the lowest and/or highest score in the class? The typical explanation for such statistical manipulation of raw test scores is to create a distribution where classmates are compared to each other, rather than how well they actually score on the usual grading scale.

The National Association of Realtors® (NAR) August 22nd news release titled “Existing-Home Sales Improve in July, Prices Continue to Rise” at first glance might seem good news, but after a deeper look the news may not be as promising. The release states that the July’s total existing home sales increased 2.3% in July from June, based on July’s seasonally adjusted annual rate of 4.47 million compared to June’s 4.37 million (realtor.org).

Although the adjusted data may have indicated a significant increase in existing home sales, the raw data may suggest something different. If you follow the links on the NAR’s press release through the website, you’ll find yourself at the page titled, “Existing Home Sales” (realtor.org/topics/existing-home-sales/data): where you’ll find a links to home sale data – which includes the “seasonally adjusted annual rate” and “not seasonally adjusted” stats.

Although July’s “seasonally adjusted annual rate” of existing home sales indicated a 2.3% increase over June’s “seasonally adjusted annual rate;” the “not seasonally adjusted” rate (e.g., the raw sales data) indicated that there was a 7.3% DECREASE in existing home sales in July compared to June, and a year to date increase of existing home sales of only 2.647%.

So, what’s the difference between “seasonally adjusted” and “not seasonally adjusted” data? Well, for that explanation, we need to follow the links to the methodology (realtor.org/topics/existing-home-sales/methodology). “Not seasonally adjusted” data is described as raw data that has been basically scrubbed for errors. However, the site states that “It is necessary to “annualize” and seasonally-adjust the existing home sales data so that month-to-month and quarter-to-quarter comparisons can be observed without seasonal variances distorting the overall picture;” thus the “seasonally adjusted annual rate” may be forward looking figure estimating a rate by which homes are selling.

And of course, many media outlets took the headline and ran with it without explaining the meaning of the “seasonally adjusted annual rate.” July’s figure gives the impression that the housing market has made significant improvement during a month where the actual number of existing homes sales decreased from the previous month. But don’t blame the NAR either: the press release contains links to pages of explanation and data for anyone to take the time to sort through and figure out.

Statistical analysis can be a good thing, if the statistic is meaningful and is understood. It seems as if everyone already forgot about the criticism that the NAR received last year because they announced a downward revision of existing home sales going back to 2007. If you remember, the main reason given for the revision was for “data drift” that occurred during the housing downturn; and much like other estimate revisions (such as GDP and employment figures) “re-benchmarking” is a common aspect of estimating economic data.

Regardless of what the rate of annual home sales is estimated to be, we’ll know the actual number of existing home sales at the end of the year. And at that time, we can determine what kind of year 2012 has been for housing.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of August 27 , 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.