Now we know that the recent housing crash was about 14 percent worse than previously thought. That is the conclusion of benchmark revisions by the National Association of Realtors, after they realized that their numbers were “drifting” from other industry calculations.
That drift was caused by a big shift away from For Sale By Owner (FSBO) sales to Realtor sales (which was a big factor in their methodology), an increase in the geographic size/range of many multiple listing services (MLS), and double counting due to Realtors listing properties in several different local MLS’s.
So what does this change?I’ve already expounded on what it doesn’t change, which is really anything happening today in the economy, current home sales and prices and already-accounted-for losses from the housing crash.
It does however, change perception and economic prediction as we go forward. The Commerce Departmentwill have to revise the housing component of GDP lower, and, perhaps more importantly, we have to look at comparisons and the overall health of today’s housing market differently.
First and foremost, distressed sales, which are foreclosures and short sales, mean a lot more now.
Shadow inventory (properties with seriously delinquent loans or properties already in foreclosure/repossessed), which CoreLogic just reported now stands at 1.6 million properties in October, are suddenly a far greater share of the overall market, since normal for-sale inventory dropped by 14 percent with the revisions.
This is important because loan defaults and foreclosures in total and as a percentage of total inventory and sales volume are key metrics in forecasting home sales and pricing.
“This has implications, especially given the late stage default and ready foreclosure pipelines have grown enormously...shadow inventory just got much larger. Time to absorb got much longer. The NAR revisions make it so we have to increase our upper bounds in distressed-to-organic sales metrics, which means a higher likelihood of greater house price depreciation,” notes mortgage analyst Mark Hanson. “Already in key regions and states around the nation distressed sales are the market. This will make it so many more markets around the country become mostly distressed markets in which distressed volume outpaces organic.”
Home buyers, sellers, and especially builders base important decisions on these distress factors in today’s market, and now their base of comparison is suddenly way off.
Granted, many of these same people are looking and comparing very locally and should know better than to rely on aggregate national data, but still it does have implications on overall consumer sentiment, which translates into buying and selling.
As we’ve already noted on this page, foreclosures are increasing, as the backlog from the so-called “robo-signing” paperwork scandal makes its way through final processing.
That increase in inventory will now be compared against a smaller pool of organic inventory, and that may, in turn, affect overall home prices more than we anticipated. Investors will likely take up much of that slack, and if the government and private sector finally finish plans in the works to entice more investors, some of that effect could be largely mitigated.
So no, the revisions don’t change sales on the ground today, but it remains to be seen how the perception of a deeper housing crash will affect home sales, prices and distress in the future.