Did Realtors Inflate Home Sales by 1.6 million in 2010?

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This house may have never sold (Photo: Jeff Haynes/REUTERS)

Note: This is a guest post written by TIME reporter Josh Sanburn.

UPDATE (11:00AM, February 23): The National Association of Realtors said that existing home sales rose 2.7% in January from December, and were up 5.3% from a year ago. It was the first time in seven months that sales rose from the same month a year before. But before you put your home on the market, consider this: It appears the NAR may be inflating homes sales numbers, and not just for this January, but for years.

We knew that 2010 was another disappointing year for the U.S. housing market. But it appears it may have been worse than we were led to believe.

The National Association of Realtors, which publishes the most popular measure of existing home sales, may have included as many as 1.6 million fictitious transactions in its data for 2010. And it wasn’t just last year. According to a new report by CoreLogic, a real-estate analytics firm, NAR has long overstated housing sales. But those overstatements appear to have widened starting in 2006, just as the housing market was starting to crack. The question is just how much did NAR’s inflated counts mask the severity of the real estate downturn. More importantly, the NAR misstatement may mean that it will be longer before housing recovers than we thought. Here’s why:

By NAR’s numbers, there were 4.9 million previously owned homes sold last year, down 5.7% from 5.2 million in 2009. But CoreLogic says the trade group’s numbers understate the severity of the drop in housing by about nearly half. By CoreLogic’s numbers, sales of previously sold homes fell 10.8% to 3.3 million homes in 2010, from 3.7 million the year before.

What might have gone wrong? NAR uses 2000 Census data as its benchmark numbers, and bases its estimates for home sales on a sampling of data collected from multiple listing services, which track local housing markets, and larger brokerages. The farther we get from 2000, the more likely NAR’s data could be flawed. CoreLogic, on the other hand, calculates its figures through public sales records from county recorders and courts.

The result is a mismatch. When the two data sets are compared, NAR’s numbers make it look as if U.S. housing sales rebounded in 2009, while CoreLogic’s show a continued decline through 2010. There have been discrepancies between NAR’s data and information collected by CoreLogic, the Mortgage Bankers Association and the U.S. Census Bureau for years, says the CoreLogic report. But as the differences have gotten larger, a number of bloggers and analysts have begun to question NAR’s statistics.

A spokesman for NAR says that it should be noted that CoreLogic is “a competitor of ours when it comes to this kind of statistical data.” He says NAR is reviewing its data with a number of independent sources, including outside housing economists, government agencies and academic experts. The NAR calls CoreLogic’s assumptions that the trade group’s numbers are inflated “premature at best.” Nonetheless, NAR seems to be backing away from their current estimates, saying they will be making “benchmark revisions” to their sales data later this year with published reports coming this summer.

Which numbers are correct? The housing market does seem to continue to deteriorate. So numbers that argue sales are weaker than we thought would make sense. On Tuesday, the folks who run the Case-Shiller housing price index said that home values fell another 1% in December. It’s the third consecutive month the housing barometer has fallen at least a full percent.

What’s more, NAR has a history of being overly rosy about the housing market. According to NAR, a similar statistical miscalculation caused the trade group to have to cut its housing numbers in 2000, that time down 13%. In 2005, NAR’s then chief economist David Lereah, who TIME named to its list of people to blame for the financial crisis, famously wrote a book titled, Are You Missing the Real Estate Boom?, which came out just as the real estate boom was ending. Lereah continued to make rosy statements even as home prices tumbled. In 2007, Lereah said real estate had hit a bottom. It still hasn’t.

So what does all this mean? Well, besides the likelihood that fewer homes actually sold in the last few years than we thought, it probably also means it will be longer before we see home prices begin rising again. In fact, they could continue to fall. Fewer sales means there are more houses on the market waiting without buyers. CoreLogic calculates there are about 16 months of housing supply, compared with NAR’s estimate of 9.5 months. NAR has historically said that anything more than 6 months of supply indicates a weak housing market.

Robert Shiller, a Yale economist and half of the team for which the Case-Shiller index is named, on Tuesday said there is “substantial risk of home prices falling another 15%, 20% or 25% more.” The housing slump seems far from over.