No, Pending Home Sales Index Did Not Rise

"The worst part of the credit crunch" is already reflected in the data, said Lawrence Yun, chief economist for the NAR . . . the data suggested the worst declines are over."

-NAR release, December 10, 2007


Um, no.

That is not what their own data suggested. (You can always tell when these folks are lying — the clue will be their lips are moving).

The trade association is notorious for their ever-sunny forecasts and steadfast denial of the housing bust.  The monthly release of the Pending Home Sales Index (PHSI) presents just another opportunity to offer their absurd take on the Housing market.  The headline data release yesterday (Existing-Home Sales to Trend up in 2008) along with that absurd quote above reveal no change in their willingness to misrepresent even their own data. Yesterday’s spin was "Existing-home sales are projected to trend up in 2008, with pending home sales showing a slight near-term rise. However, a recovery for new-home sales is unlikely before 2009."

Phsi_20071210 That is a false interpretation of the Index reading, according to the NAR website. Why ? Look at the index itself (see chart), and the NAR’s own methodology of how to interpret it.

The PHSI is an index based on a large national sample. The operators of site states this indicator, derived from "about 20 percent of transactions for existing-home sales," is supposed to lead activity in the housing sector over the next few months. The PHSI Index for October 07 showed an 18.4% drop below the year-earlier level, and month-to-month showed a rise of 0.6%.

By emphasizing the monthly data, the NAR chose to ignore their own methodology for interpreting the Index. From the NAR explanation of the methodology of the PHSI:

"In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity from 2001 through 2004 parallels the level of closed existing-home sales in the following two months. There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons.

In other words, which should we pay attention to: the piddling 0.6% rise in October from the revised September reading, or the 18.4% year-over-year earlier drop?  Its the annual data — and that was quite awful . . .


The NAR continues as a source of amusement. They are instructive as to why news releases from industry spokesgroups need to be fisked very closely.


UPDATE:  December 11,  2007 10:22am 

See Dan Gross’ Slate piece:

Worst. Forecasters. Ever?



Existing-Home Sales to Trend up in 2008
NAR, December 10, 2007

Pending Home Sales Rise But Remain Below Year-Earlier Level
December 11, 2007; Page A2

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What's been said:

Discussions found on the web:
  1. J commented on Dec 11

    It’s pretty clear from the graph that a change of this size is just noise–over the last 2+ years there have been several small upward blips superimposed on a major downward curve.

  2. Marcus Aurelius commented on Dec 11

    When I opened my front door this morning, I found a 5 dollar bill on the front steps (must have fallen out of someone’s pocket as they fumbled for their keys). Being that I had just stepped onto the sidewalk, this meant that I was up $5 in the first minute of my work day. Using the NAR method, I project that by the end of next year, I’m going to be a billionaire. Thanks, NAR!

  3. ken h commented on Dec 11

    It’s also an issue of credibility. realtors, MB’s, and the NRA in general are now being looked at as charlatans. Educated people will look to avoid them much like they do car salesman and take what they say with little confidence.

  4. ken h commented on Dec 11

    OOps! The NAR and not the NRA.

  5. Josh commented on Dec 11

    Calculated Risk had a great post on yesterday’s existing home sales forecasts. Among their analysis, they showed the following NAR forecasts:

    As of Feb. 2007:
    2007 6.44
    2008 6.64

    As of Dec. 2007:
    2007 5.67
    2008 5.70

    The most amusing is Calculated Risk’s conclusion, “I think their forecasting model is broken.”

  6. UrbanDigs commented on Dec 11

    yea I discussed this farce also yesterday:

    NAR is hurting credibility for agents who have a hard enough time earning trust with their clients. SOme of us work very hard to service our clients and win a client for life. Crap like this makes that effort less worthy; I just dont get what these guys are afraid of!

    Lose the used car salesman BS!

  7. Michael Donnelly commented on Dec 11

    Let’s not forget what happened in October, new home prices fell by almost 9%. You’re telling me to get a 0.6% increase in signed contracts you have to drop prices by 9% ?

    Yeah, that’s a formula you can repeat over the next couple of years.

  8. Sean commented on Dec 11

    Looking at the past year data, I would think that seasonality is a factor year.

    Seems like there was a similar little-upward-spike in 2006 Oct.

  9. H Bear commented on Dec 11

    Does anyone know a way that small investors can short commercial real estate?

    We talked about the residential bust for years before it happened, never acted. Would like to play a little in that space but have not found a way to do so. Thanks!

  10. RW commented on Dec 11

    “…short commercial real estate”

    SRS is about as close as you’ll get w/o a margin acct (or in a retirement acct). SRPIX is a possibility too – it’s NTF in a couple places like Scwhab.

  11. michael schumacher commented on Dec 11

    Morgan Stanley finally has some balls to say we will be in a recession however doing it on the very day of the expected rate cut is jut a little too precious.

    It’s also (no surprise there) in all of the non-US newspapers but not here. Can’t show ANY weakness except on the day that you know you’re going to have cheaper money to throw around.

    Where’s the article by Tangelo??? oh that’s right he did his bit last week….


  12. Terence Burns commented on Dec 11

    One would think that at some point the leadership of the NAR would realize the toll this is taking on their credibility as a business association. If they had any balls they’d sack Yun and replace him with an economist who will prepare more reasonable estimates. The analyses of Yun and his equally absurd predecessor sound like whistling past the graveyard, and have made the NAR a complete laughingstock, particularly among realtors. These clowns make Wall Street analysts sound like paragons of truth.

  13. dhurowitz commented on Dec 12

    After reading the recent Greenspan article “The Roots of the Mortgage Crisis” i have a different view on the cause and effect models of the real estate markets. In a broad sense it appears that much of the market rise and fall had little to do with the fed rate.

    The NAR had about as much effect as the NRA on the recent decline.

  14. Nate K. commented on Dec 12

    The NAR should really rename themselves the National (*A*lice in Wonderland) Board of Realtors. Mr. Yun could play the role of the Mad Hatter. If their forecasts were really accurate, and things are going to look up next year, then you wouldn’t see all the Mortgage Lenders, with all their statistics and research, pruning and laying off their Mortgage personnel faster than you can stamp on a roach that shows up in the kitchen. But they are. As shows, the job losses in that space are tremendous, and if the lenders thought it was going to turn around soon, they wouldn’t be so hasty in doing so.

  15. SR commented on Dec 16

    Don’t blame Mr. Yun. The previous Chief Eonomist Mr. Lareah was equally absurd. Ge seems to be just follwing the party line.

    Unfortunately, NAR has sold the dream that owning the house is the best thing since sliced bread.

    The price of a median home has gone up by a large amount over the last several decades – they forget to tell that the size of the median home has also gone up. If you take this into account, the actual appreciation is a measly 2-3% per year. If you look at the leverage that a house represents, it is not such a great investment.

    The realtors keep charging 6% for a transaction just for opening and closing the doors for the houses on sale. They are not interested in their clients’ financial well being but completing the transaction ASAP.

    Unless this commission structure is changed, you will keep hearing the rosy forecasts.

  16. The Big Picture commented on Jan 8

    Pending Home Sales Index, NAR Housing Market “Bottoms”

    The National Association of Realtors Pending Home Sales Index has been released, and it is once again, an exercise in spin. Stable Existing-Home Sales Expected in Early 2008, then Gradual Rise Over the next few months, existing-home sales are expected …

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