The National Association of Realtors housing statistics released last week showed a slump in January, fueling many to believe that the housing segment was starting to crumble at the foundation, weighed down by other economic indicators such as rising inflation, unemployment, and a battered stock market.

But the numbers were wrong, a programming error on the part of an outside vendor which failed to seasonally adjust housing numbers for the short period. Last week, the NAR mistakenly reported January sales of 4.65 million homes, down from December sales of 4.98 million and up 2 percent from January 2000. Housing resales actually rose 3.8 percent in January to 5.13 million instead of falling 6.6 percent, say the revised numbers. The December sales were revised to 4.94 million.

"This is good news in terms of the housing economy," said Steve Cook, spokesperson for the NAR. "The revision was based upon an error we found in the data. We compare year to year and month to month and check the data algebraically and that's why we decided to adjust the numbers."

The bad news is that the NAR must revise its numbers for the past three years, said the association. There may have also been consequences for entities which made investment, inventory, or building decisions based on the NAR's incorrect data. According to a Washington Post report, "There was a lot more talk of recession when those existing-home sale numbers came out," said Orawin Velz, senior economist at secondary mortgage giant Fannie Mae. "Anyone who was afraid, and using housing data as evidence of a higher risk of recession, needs to reevaluate that view now."

"Those numbers gave the impression that the economy was worse than it was, that consumers were retrenching when in fact they were not," said Sung Won Sohn, chief economist at Wells Fargo & Co., to the Washington Post.

To correct the misinformation, the NAR has released a statement by David Lereah, chief economist for the NAR.

"The upward revision to the January estimate for existing home sales is now an annualized 5.13 million units, representing a 3.8 percent rise from the revised 4.94 million unit annual rate in December of 2000. These revised numbers suggest that the trend in existing home sales during the past several months is more in line with the recent strength exhibited in both new home sales and housing starts. It is now also clear that the housing sector continues to stand tall while other sectors of the economy continue to exhibit sluggishness. Historically low mortgage rates and continued strength in the jobs market are providing consumers with the wherewithal to purchase the big-ticket items-- homes and automobiles.

When asked how the revised numbers should affect the economy, Cook said, "It's hard to say what the Federal Reserve will do." Lereah said, "This revision should serve as a message that all major housing measures have consistently outperformed other sectors of the economy. Given the sector's dependency on interest rates, further rate cuts by the Federal Reserve should help support a healthy housing market in the future."

NAR says that it apologizes for the error, as data integrity is paramount. Although the error resulted from an unusual confluence of events, procedures to ensure it can never recur have already been implemented, said the association.

The next existing home sales report is due March 26.

Published: March 9, 2001

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