The Wall Street Journal

22 December  2011

The housing slump was deeper than initially estimated but new data indicate that the worst of the downturn may have passed.

The National Association of Realtors said Wednesday it over-estimated home sales by 14.3% between 2007 and 2010, meaning that 2.9 million fewer homes sold during those years than thought earlier.

The trade group, which tracks previously owned homes, said the over-counting was due to shifts in the housing market that weren’t detected until this year.

But the report also provided fresh signs that housing is improving. Home sales in November rose 4% from October’s levels to a seasonally adjusted annual rate of 4.42 million, the second-highest level of the year.

At the current rate, sales are on track to exceed last year’s depressed level of 4.19 million. While that would be an improvement, sales remain lower than at any time since the late 1990s and are well below the annual level of 5 million units seen before the housing boom of the mid-2000s.

“We are not expecting to see a housing market that could be described as strong. But despite the downward revisions to sales, a modest recovery may be under way,” said Paul Dales, an economist at Capital Economics. Prices could stop falling next year, he said, but it will take until 2014 for markets to show sustained gains.

The Realtors’ report showed that housing inventory declined to 2.58 million in November, down 18.1% from one year ago to the lowest level since the spring of 2005.

Low inventory is normally a sign of health for housing markets because reduced competition can result in higher prices. But real-estate agents say markets are stalled now because sellers aren’t willing to reduce prices further and are keeping their homes off the market rather than settling with buyers seeking deep discounts.

Buyers, meanwhile, remain frustrated by inventory that they say is unattractive or overpriced. A shortage of inventory has “caused buyers to go away,” said Ron Leis, a real-estate agent in Sacramento, Calif. “It’s our biggest issue right now. They lose interest because there just isn’t anything to buy” that meets their requirements.

Andrena Crawford, a 68-year-old retired civil servant, has long wanted to sell her Kissimmee, Fla., property but won’t accept the $100,000 or so she thinks it would fetch right now.

She and her husband bought the home, where they live during the winter, in 1994 for $106,000. During the boom, the property’s value rose as high as $200,000, Ms. Crawford says. She hopes to get $160,000 for it and recently met with a real-estate agent to gauge the market. “He’s advised us that if we’re not in a hurry to hang on a bit,” said Ms. Crawford, who spends part of the year in her native Scotland. “As long as I can cover myself (with renters), I’m happy to let it run.”

The drop in inventory could be temporary because millions of homes are expected to go into foreclosure. Analysts at Barclays Capital estimate that 3.4 million mortgages are in some stage of foreclosure or have gone more than three months without a payment. Banks have been slow to repossess these homes after foreclosure-processing abuses surfaced last year, but the inventory ultimately could rise as banks begin to take back and list more of those properties.

The Realtors group typically revises home-sales data every 10 years because its estimates are benchmarked to sales figures from the decennial census survey. But earlier this year the NAR began contemplating a significant downward revision after real-estate groups pointed out potential flaws in the group’s tally.

The Realtors’ group doesn’t count the number of sales registered every month. Instead, it produces estimates based on a broad sample of data reported by local multiple-listing services to calculate monthly changes in sales. It then makes estimates about other sales that aren’t included by those groups, such as “for sale by owner” transactions, and pegs the monthly changes to the total sales reported in the census survey. Economists, investors and the real-estate industry use the NAR estimates to gauge the health of the nation’s housing market.

The trade group’s model unintentionally began over-counting sales as the housing downturn accelerated in 2007. Consolidation among the multiple-listing services meant they were counting a greater share of sales than was accounted for in the NAR’s methodology. Also, the share of “for sale by owner” sales declined from a 16% market share in 2000 to 9% in 2010.