Grading the housing market on a curve – how housing stats can be misleading

Dan Krell, Realtor®
© 2012

Home Sale StatisticsDid 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 (

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” ( 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 ( “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.

Home Sale StatisticsStatistical 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.

The economy, stupid

Is the housing bust over, or is it about the economy (stupid)?

by Dan Krell ©2012

Unemployment officeLast week’s Wall Street Journal report that the housing bust is over has grabbed everyone’s attention (Housing Passes a Milestone; The WSJ reported that of forty-seven “forecasters” surveyed, forty-four believe that the housing market has bottomed out. There are several factors cited by these “experts” as rationale for the stating the bust is over, as well as asserting that the housing market will not be a further drag on the economy. However, many experts may be missing some data points; as well as not recognizing causality.

Although the U.S. housing bust may be over (for now), as experts proclaim; other regions of the world are struggling. Two of the most influential economic regions, Europe and China, are experiencing real estate slumps.

According to a May 31st report in The Economist (Downdraft: European house prices are finding it harder to defy gravity), global house-price indicators point to increased volatility. Although, Europe’s housing markets experienced similar declines we experienced during the financial crisis; individual countries differed in their housing outcomes. Troubled economies, such as Ireland and Spain, continue to have lagging housing markets. Ireland’s already depreciated home prices are reportedly continuing to drop; while Spain’s home prices are reportedly over valued while prices also continue to drop. However, Germany, France, and Belgium’s housing bounced back relatively quickly and reportedly appreciated through last year.

However, as recession looms and unemployment increases in the Eurozone; The Economist reported that the pace of housing depreciation increased in weaker countries, while housing appreciation stalled in Germany and France.

The other big economy that may also show signs of stalling is China. China’s recent GDP growth was reported to be 7.9%. From a bustling economy that reported GDP growth over 10% in 2010, and GDP growth over 9% in 2011, the shrinking GDP may be a signal. Although overall Chinese housing prices are reportedly flat, some have reported that some provinces have experienced as much as a 30% drop.

Although the Chinese housing market is a bit different than the U.S., (private property ownership is a relatively recent development); albeit volatile, housing is a component of the Chinese economy. A December 2011 report by Patrick Chovanec in Foreign Affairs (China’s Real Estate Bubble May Have Just Popped) indicated that Beijing new home prices dropped 35% in November 2011. Property agencies reported that new home inventories are building and buyers are hard to find.

Additionally, The China Perspective reported in January that re-sale home sales volume dropped about 23%. As a result, real estate agencies are closing offices. It was reported that an average 3.8 offices closed daily in Beijing; while the number of real estate agency offices in Shanghai has been reduced 40% since their housing peak.

Unemployment officeAs other global housing markets stall, there may be a silver lining. The devaluation of residential real estate abroad has attracted foreign investors to U.S. housing. Although international buyers have bought homes at all price levels, the luxury real estate market seems to be attracting most attention.

But back to what the experts proclaim as the bottom of the market – yes there are some positive signs, but it’s too early to tell if the bust is over. And although these experts proclaim that housing will no longer drag the economy; the reality may be that it’s the economy that’s dragging the housing market.

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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 July 16 , 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.
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This is not your father’s housing recession or recovery

by Dan Krell ©2012

homesWhen the housing market began its decent into uncharted territory in 2007, people talked of a “V” shaped housing market recovery, meaning that they braced for a market bottom followed by an upturn of increasing activity. What many experts are now talking about is an “L” shaped market recovery, where the housing market will hit bottom and not begin its ascent for a number of years. In retrospect, we have experienced the market’s bouncing along the bottom for at least 2 years (seeing inconsistent activity from month to month); although some still think that the market has yet to bottom out.

Two reasons why the housing market may continue to drag along the bottom include the dramatic loss of net worth in recent years and the recent increase in foreclosure activity.

The fact that the mean (average) income fell 7.7% is nothing compared to the 38.8% drop of mean net worth, as reported by a recent Federal Reserve Bulletin, “Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances” ( The report stated, “Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices.” The report further clarifies, “…The decline in median net worth was especially large for families in groups where housing was a larger share of assets, such as families headed by someone 35 to 44 years old (median net worth fell 54.4 percent)…”

This report underscores what many in the industry have known, but have not fully admitted about the weak move-up market; the dramatic loss of home equity in recent years has not only made it difficult for many to sell their homes, but also has taken away the means to purchase another [home]. Additionally, the combination of diminished net worth and reduced income has forced many would-be first time home buyers to wait on the sidelines.

Additionally, foreclosures have not been news for some time, but the reduced foreclosure activity in the past year was said to be temporary in response to legal challenges and the robo-signing fiasco. As the shadow inventory (homes in foreclosure or bank owned) has been building up, many speculate the impact when foreclosure activity picks up.

A recent RealtyTrac ( press release reveals that foreclosure filings have picked up and discusses the possible outcome. Besides a 9% increase in nationwide default notices was reported in May; RealtyTrack reported, “Foreclosure starts nationwide increased on an annual basis after 27 consecutive months of year-over-year declines.”

Lenders are becoming increasingly aware of the benefits of selling distressed homes as short sales over repossessing them. Brandon Moore, CEO of RealtyTrac, was reported to say that the increase of pre-foreclosure sales is an indication that many recent foreclosure filings may end up as short sales or auctioned to third parties, rather than becoming REO (bank owned).

The dramatic loss of net worth along with continued foreclosure activity only contributes to the changing perception of home ownership. This housing recovery will certainly be recorded in the history books as one of the most protracted and having a lasting impact; this is not your father’s housing recovery.

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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 June 25, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

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Real Estate in review 2011

Since the housing downturn, optimistic predictions the real estate market have been forecasted annually. However, what we have seen in retrospect is that home buyer incentives along with other housing stimulus measures have only acted to maintain an ailing housing sector from deteriorating further. Some still await the market bottom. And although 2011 revealed additional weaknesses in global economic systems as well as the unintentional consequences of policy and regulation, 2011 felt as if it was the most optimistic year in real estate since the downturn.

2011 will be remembered as the year that the National Association of Realtors (NAR) revised existing home sales down 14.3% for estimates between 2007 and 2010 (data released on December 21, 2011 and available on Regardless of the re-benchmarking of data, the NAR has announced that existing home sales in 2011 continue to strengthen as November’s data indicates increased sales from the previous year (really?).

2011 was not the year for home price gains, however. Home prices continued to decline nationwide. However, the Washington DC and Detroit metro areas were the only two regions that posted positive home price gains from the previous year according to the S&P/Case-Shiller Home Price Index.

2011 was the year that housing finance reform continued to crawl forward, while Wall Street reform seemed to move quickly with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Although Dodd-Frank seemed to be focused squarely on Wall Street, it appeared to be far reaching with the requirements such as the 20% down payment Qualified Residential Mortgage (QRM).

2011 will be remembered as the year that the Eurozone almost collapsed. The financial déjà-vu that played out over the summer (and is still yet totally resolved, mind you), threatened markets worldwide- including the U.S. housing market. The sharp economic decline, that some braced for, was averted.

2011 was the year that we saw a bifurcated market become increasingly significant. The upper-bracket/luxury home market appeared to stabilize ahead of other housing, as upper-bracket/luxury housing activity remained strong. In fact two of the most expensive homes in Washington, DC sold this year! Reports that Evermay, the DC mansion that was originally listed for $49 Million, sold for $22 Million in July; while Halcyon House was reported to sell a couple of months later for $12.5 Million.

Regardless of the continued efforts of government preparedness campaigns (remember the Center for Disease Control “Zombie Apocalypse” preparedness campaign on; 2011 will be remembered as the year that nature made a point about preparedness. If you weren’t concerned about preparing for the Mayan 2012 prophecy; then enduring hurricanes, floods and an earthquake probably had you at least checking your homeowners’ insurance.

As foreclosures declined in 2011, it seemed as if reports of mortgage lender abuses increased. Lenders appeared to be under fire from class action lawsuits as well as attorneys general for lending practices and foreclosure procedures; Bank of America recently reportedly settled a lawsuit for $335 Million.

Alas, the year is almost over; having us searching for fond memories of 2011 and wondering what will 2012 bring. Some look for home prices to make some gains in the coming year (, however more importantly you can probably expect the housing market to be glamorized in the pomp and circumstance of the election cycle of 2012.

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

by Dan Krell
© 2011

Post-crisis real estate: What’s in store for the housing market?

by Dan Krell
© 2011

It is often said that history repeats itself. If we want a glimpse of our future, we should look to the past; if we want to see how a post-crisis housing market looks like, we should look to see how a previous housing crisis ended.

According to the Census Bureau (, the last time homeownership rates declined was 1980-1990. Recent seasonally adjusted homeownership rates have been declining slowly from the all time high of 69.2% reached in the first quarter of 2005. The current seasonally adjusted homeownership rate (for the third quarter of 2011) is 66.1%, which is similar to the homeownership rate of 66.2% reported by the 2000 Census.

Although the country is dealing with some of the same economic issues that was problematic during the early 1980’s; the current real estate market is more akin to like the post S&L crisis of the late 1980’s and early 1990’s, when the market was flooded with foreclosures and a coinciding recession impeded an already difficult housing market. Some may remember that during that time home prices decreased and, not unlike recent events, many home owners walked away from their homes (some lenders were sent the keys of recently purchased homes).

Then like today, resulting legislation changed the lending landscape in an effort to ensure such systemic abuse and failure would not happen again. The Census reported that the homeownership rate in 1990 was 64.2%, just shy of the 64.4% homeownership rate reported in 1980.

Additionally, mortgage interest rates were “normalized” post the S&L crisis, making homeownership more affordable than the previous decade. Then, like today, low mortgage rates are touted to make owning a home more attractive than renting.

Also, like that time, the real estate business was changing. Besides changing business models (buyer agency was becoming recognized across the country), large real estate brokers downsized and/or absorbed brokers wanting to get out of the business. Today’s real estate business models have changed to accommodate technology and a vast array of information; additionally, national and regional brokers may begin to see their market share change with the marketplace.

Demographics are always changing. Current demographics indicate a shrinking pool of willing home buyers and sellers. As home prices have dropped over the last several years, many baby boomers who planned to downsize cannot afford to sell their home; additionally, “move-up” home buyers have also decided to make do with their current home longer than they planned as they find that their home’s equity has diminished. Many renters are choosing to continue renting as homeownership is viewed as an anchor; they prefer to be more mobile and not tied down by homeownership until they become more established in their careers.

Before home prices can stabilize, many expect average home prices to drop another 20%. Home prices have (more or less) historically returned to an established “norm” after a housing boom. Home prices are about 26% higher than the “norm” adjusted price, which was established in 1890 as reported by Robert Shiller (Irrational Exuberance; Broadway Books 2nd edition, 2005).

As we move forward, economic and industry related barriers continue to prevent a recovery in the real estate sector. It may be several years before these issues may be managed; however once addressed, confidence in homeownership may begin to increase once again instilling pride and sense of community.

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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 December 12, 2011. Using this article without permission is a violation of copyright laws. Copyright © 2011 Dan Krell.