Let’s play ‘spin the data’

Dennis Norman

Or should I say “It’s all in the headline”?


So what am I talking about? The pending home sales data that was released by the National Association of REALTORS today, of course. Actually I could be referring to any data on the housing market whether new home sales, foreclosure rates, interest rates, existing home sales or inventories of homes for sale.

There only major housing report that was released today was the Pending Home Sales Index for November by NAR. Being a report based upon data you would think the numbers speak for themselves; ah, but that is before the “spin” gets put on the data, beginning with the headlines (or in blog post titles…OK, I’m a big boy, I’ll admit it, the titles of my blog posts reflect my view of the data).

So here is how it went this morning after the Pending Home Sales data came out:

NAR’s press release headline: “Pending Home Sales Down From Surge but Higher Than a Year Ago”

Fox Networks Breaking business news headling: “PENDING HOME SALES DROP 16% IN NOVEMBER, LARGEST DECLINE ON RECORD”

Hmm…NAR says sales “down” but hey, higher than a year ago (remember a year ago, one of the worst housing markets since the depression….do you feel better knowing we are beating that year?

Fox says “largest decline on record”….wow, that sounds ugly especially since 2009 is supposed to end up being a better year for home sales than 2008.

So what is reality? Or at least reality in my opinion (for whatever that is worth) based upon the data?

For starters, remember the Pending Home Sales Index is probably, in my humble opinion, one of the least accurate indicators of the housing market that NAR produces. Why? Well, for starters, the index counts a “sale” as pending “when the contract has been signed but the transaction has not closed” and is based on a national sample typically representing “about 20 percent of transactions for existing-home sales”. Therefore there is a lot of room for error, not to mention there is an increasing percentage of “sales” that do not close today due to appraisal issues, financing issues, short sales that are not approved, etc. The index is strictly based upon “quantity” of contracts to buy, not necessarily “quality” of contracts to buy.

Having said that, let’s look at the numbers:

  • November’s pending home sales index (seasonally adjusted) was 96.0 (the index is based upon 100.0 being equal to the average level of sales activity in 2001 which we could call the last “normal” year)
  • November’s index was down 16.0 percent from October’s revised index of 114.3 and up 15.5 percent from November, 2008’s index of 83.1
  • November’s index was the lowest since June, 2009 when the index was 94.6
  • November’s pending home sales index (NOT seasonally adjusted) was 78.4, down 27.7 percent from October, up 19.3 percent from a year ago and the lowest index since February, 2009 when the index was 75.3

What I make of these numbers is that people were scrambling to buy homes before the homebuyer tax credit expired on November 30th (it has since been extended) and that produced “unseasonally” high numbers for the few months proceeding the deadline. However, by November this surge was over and things settled down.

So what would I have made the title of this post if I wasn’t trying to be clever? “Pending home sales drop after a “sugar-rush” caused by expiring tax credits”

Oh yeah, now that I have given my take on things, you can see what Lawrence Yun, the chief economist for NAR, has to say about it.

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