Friday, December 23, 2011

So The NAR Inflated Sales Numbers From 2007-2010. What Does This Mean For the Charlottesville Area Housing Market?

The National Association of Realtors, whose primary purpose is to boost the profits of its members, has announced it misled home buyers, sellers, Congress, and the Mainstream Media about how deep the housing bust has been.  From 2007-2010, the NAR overestimated sales by 6.5 Million, at a rate of 14.3%.

And here's the kicker: the NAR's new numbers still aren't  accurate.  The NAR still isn't offering an actual, accurate count of home sales, but an estimate, which housing analyst Thomas Lawler says will be revised again.

Savvy financial bloggers have been deriding the NAR's lack of credibility for years (see Ritholtz and Middleton).  With the current debacle, CoreLogic (which outed NAR) and other data providers should become the leading sources for the MSM--and consumers--instead of the trade organization.

Before this post goes further pointing out the fallout from NAR's errors, it must be reaffirmed that this blog has a healthy respect for some individuals who are Realtors: we're in the middle of a conversation with three of them.  There are many real estate agents who outperform their trade organization in intent and detail, and they provide necessary services. Many agree it's outrageous the NAR has duped the American public and humiliated its members.  

The larger impact, however,  is worse than duping and humiliation.

What's the Impact of Reporting Inflated Sales Figures?

Real Estate is National - All real estate transactions may be "local."  But perception of and confidence in real estate is national.   We live in the Social Media Driven, 24 Hr News Cycle World of Constant Contact.

How is this important to C'ville? What happens elsewhere in the Country--price drops, buyer reluctance--eventually trickles its way to C'ville, 12-24 months later.  The bubble bursting, price drops and buyer fear got here a little later...but they got here, and are still going on.

Deception and Duplicity - We've all seen those ads where NAR pretends to be an advocate for families, and Realtors are portrayed almost as Good Samaritans eager to help folks get a leg up into their dreams.  In reality, the ads often used data that was outdated.

How is this important to C'ville?  
  • The duplicity comes from the mixed message: The NAR cares about profits, but some individual agents actually care not just about the money, but also have a sincere desire to help folks get into a home.  But the messages are confused.  
  • Since The Mother Ship has erred, it's even more confusing to consumers.  What about the CAAR? they ask. While the local numbers may not be in error, there are certainly areas in CAAR Quarterly Reports that need "clarification," ioho.  Examples: here and here and here and here.  
  • Are local media entities going to continue to print the NAR and CAAR reports verbatim, or will they do their own analyses? 

Credibility - Combine the false sales numbers with the propaganda, and you may have potential buyers and sellers who can't or don't believe anything that a Realtor says.  
Distressed Sales - Foreclosures and Short Sales now account for a larger market share than previously known.  The larger share of distressed sales pushes consumer sentiment lower. Foreclosures will continue to surge through 2013.

How is this important to C'ville?  Our own foreclosure and short sale crises have not abated.  Estimates range somewhere between 20-30% of total sales.  And then there are those who can't or won't do a short sale, sellers who bought during the bubble; many are hurting.  Here's an example that is being followed by local media.

Demand - There were 6.5 Million fewer buyers over the past few years.  Despite lower prices, low mortgage rates, and 2009-2010 $8K homebuyer tax credit, home sales remained low.  Now that there are approximately 6.5 million (stet) units in the foreclosure pipeline, and 14 million homes expected to be foreclosed by 2013, where are the buyers coming from?

How is this important to C'ville?  Low demand is a hallmark of this area after the frenzy of the bubble: no short-term buyers, and few "move-up buyers"   (It's not like we're raising our kids to stay here--they can't find well-paying jobs that will let them afford the real estate.) Rates are low and prices have dropped here, but we're still waiting for more buyers.

Downward Pressure on Prices - Lower demand and more foreclosures / short sales mean home prices will continue to fall.  The continuing decline of home values impacts the wider economy because folks have less money, fewer jobs are created, people don't buy as much stuff, more jobs are loss...vicious circle.

How is this important to C'ville?  Home prices in this area are falling faster than the national average and have accelerated in 2011.

GDP Revision - NAR's errors could impact the GDP, causing numbers to be lowered, and help to float the Country back to the technical definition of Recession  (We're actually in a Recession/Depression, but the NBER counts differently than folks.)  The Gross Domestic Product of the US was already just been revised down to 1.8% for the 3rd Quarter of 2011.  It's not looking good.  There's been false hope lately in the MSM.  See chart.

How is this important to C'ville? As evidenced by the 2008 financial collapse and Great Global Recession, all economies are connected.

Influence - The NAR spent $16.2 Million in 2011 on lobbying.  It has been peddling false numbers to Congress and the Federal Reserve, both of whom make policy decisions based on the data.  And the financial markets rise and fall every month on the trade association's false data.  Outrageous.

How is this important to C'ville?  We are years away from  price and inventory bottoms. 
The CAAR engages in its own advocacy: there's a trip scheduled to visit Richmond legislators on Feb. 15, 2012.

The upshot is, as always, Caveat Emptor. 

The local and national housing markets are years away from "Recovery," defined as the end of declining home prices and the overhang in inventory.  The charts below, from Housing Story, only lead to one conclusion: we're still in big *&^%$#.  
Don't miss "30 Key Charts to See Before You Buy or Sell Your Home"

This chart is from 2010.  By 2011, the number has grown to 1 in 4.

By 2013, 25% of all homes with a mortgage - 13 million - will have been lost to foreclosure.

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