Posted by Leonard Steinberg on December 18th, 2011
I have been ranting about the inaccuracy and inconsistencies of residential real estate sales reporting for years, and now the ultimate embarrassment: Unsurprisingly, this week the National Association of Realtors announced that the data they’ve been releasing on home sales has been flawed – mainly understated – by possibly as much as 20% lower than previously reported. They said they will recalculate the data going back to 2007. The national news/business TV shows have reported on this because it will mean the national housing decline will be much worse than earlier thought.
The question needs to be asked: How is this humanly possible without some fraudulent activity? Surely a sale is publicly recorded, and that sale becomes the basis of data? The NAR is claiming a host of somewhat plausible reasons for the errors, but I don’t buy them. Yes, these large organizations, just like governments, are notoriously inefficient and slow (lets not forget how our government revises figures all the time and lets us know we are in a recession many months after it has started!). BUt the reporting of sales is actually quite simple. The problem is that often large organizations and some real estate companies (just like governments and large corporations) report WITH AN AGENDA. Agenda’s drive inaccurate reporting more than anything else. This is about to change with the merger of globalization and the Information Technology revolution.
Both have achieved a critical mass in the first decade of the 21st century that has resulted in the democratization — all at once — of so many things that neither weak states nor weak companies can stand up against. We’ve seen the democratization of information, where everyone is now a publisher; the democratization of war-fighting, where individuals became superempowered (as in the case of Al Qaeda to take on a superpower); the democratization of innovation, wherein start-ups using free open-source software and “the cloud” can challenge global companies. And now we will see the democratization of real estate sales information, and it will be much more localized.
In my opinion, the national aspect of reporting on housing sales is the problem (even though its essential for a country to operate well). I would propose to regionalize the reporting much more. Averages are practically useless to most in real estate world as real estate is a very, very localized business. There should be a network of smaller reporting mechanisms (preferably electronic, not human) based on pure fact. This network should then feed into a national network.
Unfortunately, the bulk of residential real estate sales close weeks and months after the actual transactional terms are solidified. With new construction, these closings can take place 1 – 3 years after a contract is signed. It is at that moment of contract signing that the true insight to the market is relevant and meaningful. I would much prefer two reports: a ‘signed contract’ report and a ‘closed sales’ report. I do a monthly report in LUXURYLETTER: it is a blending of both, so while not 100% accurate (regrettably) it is a much better indication of what is happening my very specialized market right now. Would you want to buy Apple stock based on trades that happened 6 weeks ago?
I speak with bankers on a regular basis, and they too are shocked at the lack of accurate, solid information. Much of what is out there is distorted. And the complexity of some of the data is surprising. The ENRON-ess of it all is somewhat disturbing. There are other ‘industry organizations’ that collect large fees from brokers to spew out reports that are mostly inaccurate and meaningless, often timed to be some sort of historic reference book. The large fees usually support large salaries of the organization’s leaders……Washington-style.
Bad data breeds bad decision making: The bigger problem with the democratization of information is that there is so much of it out there, often un-verified, mostly inaccurate and mostly averaged so broadly that it has virtually no value to the consumer.