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

Dan Krell, Realtor®
DanKrell.com
© 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 (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.

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.

Skepticism increases 1.3% on conflicting housing data

by Dan Krell © 2012
DanKrell.com

housing dataWhen the National Association of Realtors® announced last week that April’s existing home sales increased 3.4% to an annually adjusted rate of 4.62 million compared to a downwardly revised 4.47 million in March (http://www.realtor.org/news-releases/2012/05/april-existing-home-sales-up-prices-rise-again), I have to admit I was a bit skeptical. The local market is not exactly humming along, so as I read in the above referenced NAR release that April’s existing home sales rose 10% over the figure from April 2011, I thought some perspective is needed.

Let me quote you some housing statistics. The number of Montgomery County single family homes that sold increased 5.1% in February, 14.7% in March, 33.9% in April and 27.9% in May (MRIS data reported by the Greater Capital Area Association of Realtors®; gcaar.com). These numbers are not from 2012; but rather, these are the local stats from 2010 compared to closings from 2009. Yes, as you remember – 2010 was a spectacular year for local real estate!

Sarcasm aside, the number of Montgomery County single family home closings increased 5.8% during April 2012 (compared to 2011); and the number of Montgomery County condo closings also increased 8.1% during the same time. But, Montgomery County year-to-date settlements are still below the number of settlements that occurred during the same time in 2011 (-1.4% for single family homes; and -2.8% for condos). Although the 690 single family home settlements that occurred in April 2012 is higher than 652 that occurred in April 2011, the 2,034 single family home settlements that occurred year-to-date through April 2012 is lower than the 2,062 settlements that occurred the same period in 2011. Regardless, the number of settlements is far lower than what we have seen in past “normal” markets (for example, GCAAR reported that there were 849 settlements of Montgomery County single family homes in April 2001).

It must be noted that although the first half of 2010 seemed to be on a role, the number of 2010 Montgomery County single family home closings actually ended the year slightly lower than 2009. So, even though we have a month of some positive news, let’s be cautious about making assumptions.

housing dataOk, I know you’re going to ask about NAR’s statements about rising home sales. Sure, NAR chief economist, Lawrence Yun, was reported to say that “the housing recovery was underway.” He was also quoted to say, “A return of normal home buying for occupancy is helping home sales across all price points, and now the recovery appears to be extending to home prices…”

However, the latest release of the S&P/Case-Shiller Home Price Indices (May 29th; standardandpoors.com) states “that all three headline composites ended the first quarter of 2012 at new post-crisis lows.” Although there was a 1.6% decrease in home prices in the Washington DC metropolitan area in February compared to January, there was a 1% increase in March compared to February; however, prices have decreased 0.6% for the year.

Although media headlines shout that housing has turned a corner, it’s a little premature to assume that the housing market has normalized with only one month’s data. The housing market has turned so many corners in recent years that I think we’ve made several circles! Just as in 2010, let’s see the final tally. There’s still some data to collect; let’s see how the housing market fares through the remainder of the summer.

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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 May 28, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

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Attractive real estate agents: the research and the hype

attractive real estate agentsIt is often said that beauty is in the eye of the beholder, but a recent research article has the blogosphere a buzz questioning how attractive real estate agents can help you sell your home. The article was even posted on a National Association of Realtors® blog (realtor.org); posing the question, “do attractive real estate agents sell homes for more money?”

Do attractive real estate agents help sell your home faster?

The research conducted by Salter, Mixon & King, and published in the journal Applied Financial Economics, was titled “Broker beauty and boon: a study of physical attractiveness and its effect on real estate brokers’ income and productivity” (2012. vol. 22(10): p.p. 811-825). The research was not just an attempt at pop psychology, but rather it was one of the more recent attempts to establish how physical attractiveness affects income. The authors suggest, as stated in the abstract, that, “Results suggest that beauty augments more attractive agents’ wages and that more attractive agents use beauty to supplement classic production-related characteristics, such as effort, intelligence, and organizational skills.”

As the article makes its rounds on the internet, the results have most likely become misinterpreted and distorted. Although headlines might suggest that attractive agents sell homes at higher prices than others, however, the results could be interpreted that attractive agents may actually charge you more for their services rather than selling your home at a higher price (after all, the research is how beauty affects earnings). Additionally, as some have suggested that the results indicate less attractive agents sell homes quicker, beauty does not guarantee a quick sale (or satisfaction, as I describe below).

Although beauty is in the eye of the beholder, Hamermesh & Biddle state that there is empirical evidence that “beholders view beauty similarly” (1994. Beauty and the labor market. The American Economic Review, 84(5), 1174-1174.). They also acknowledge that beauty may “alter” other characteristics – and these variables are difficult to measure. Some variables that may be part of the “beauty quotient” might include facial structure, height and weight, while other variables may also include a person’s self esteem and confidence. Although Hamermesh & Biddle make it clear that there is a “penalty” in earnings for unattractiveness, they also acknowledge there may be “unobserved” characteristics associated with attractiveness that could account for increased earnings (they suggest a possible example is that increased earnings in adulthood with appearing physically attractive may be a result of a privileged background).

Do attractive real estate agents help sell for more money?

selling housesThe phenomenon of increased earnings for the beautiful is not a new concept, but Salter, Mixon & King have indicated it is factual for real estate agents. But the attractiveness quotient is not clear cut as other factors (besides physical characteristics) are brought to the table, such as networking and communication skills, previous experiences, and professional image.

But wait- there’s more to the story! There is another body of research on contrast effects and physical attractiveness that suggests that when people are surrounded by beautiful people, happiness decreases (see: Michael Levine (2001). Why I hate Beauty. Psychology Today. 34,4). So, this could be interpreted to indicate that just because you hire an attractive real estate agent (quite possibly for a higher commission) – your satisfaction is not guaranteed.

Do attractive real estate agents make more commission?

The bottom line: stick with the basics when hiring a real estate agent; which include (among other things) asking trusted sources (such as friends and relatives) for a referral , and ask agent about their license and qualifications as well as recent references.

Original published at https://dankrell.com/blog/2012/04/18/beauty-attractiveness-and-real-estate-agents-the-research-and-the-hype/

By Dan Krell

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. Copyright © 2012 Dan Krell.