by Wannasiri Chompoopet, Manager, Existing Home Sales, and Danielle Hale, Research Economist
NAR’s existing-home sales data is the premiere measurement of the health of
the housing market. The data – EHS – is released both monthly and quarterly,
with the quarterly reports reflecting state-by-state resales. It garners a
significant amount of media coverage – regardless of whether existing-home
sales have increased or decreased. But did you ever wonder how that data is
calculated? This brief article gives an overview of the EHS methodology as well
as how to interpret the numbers.
Each month, NAR’s Research Division receives data on existing-home sales
(single-family, condos and co-ops) from local REALTOR® associations/boards and
multiple listing services (MLS) nationwide. The data received captures 40-50
percent of all existing-home sale transactions. The data reflect the total
number of closed existing-home sales in each association/board/MLS and also
total sales within a variety of home price categories ranging from less than
$30,000 to more than $600,000.
Participants in the survey are situated in every region of the country and
provide wide geographic coverage of the existing-home market. While almost all
reporting associations/boards/MLSs are located in, or adjacent to, metropolitan
statistical areas, comparisons of their sales with the American Housing Survey
(Census Bureau) show that, as a group, their experience is representative of
sales activity and prices that generally prevail in each region of the country.
Monthly statistics are published for the United States and for the four
Census regions of the country. State resale volume is based on the entire
survey of nearly 700 associations/boards/MLSs and is reported quarterly to
ensure each state receives optimal representation.
The monthly EHS economic indicator is based on a representative sample of
200 Boards/MLSs. The home sales data (raw data) is divided into the four census
regions: Northeast, South, Midwest and West. The raw sales volume from the
participating Boards/MLSs is carefully evaluated by NAR economists to ensure
accuracy. In addition, the data is examined to factor out any potential
problems – such as changes in REALTOR® association/board/MLS jurisdiction,
changes in MLS vendors and/or staff, lack of response by participating
associations or MLSs, and erroneous data. Once the “problematic data” have been
extricated from the sample, the aggregated raw volume figures are weighted to
accurately represent sales activity for each region of the country. This is
also called the non-seasonally-adjusted volume. The weights are benchmarked
every 10 years to reflect shifts in regional demand. The non-seasonally adjusted
volume is then converted into seasonally-adjusted annualized rates (see below).
Similar procedures are used in calculating the quarterly state volume
estimates. The quarterly state volume report uses the entire data-set (nearly
700 associations/boards/MLS). Due to the significant differences in sample size
for the two reports, the state estimates must be adjusted to conform with
regional totals.
It is necessary to “annualize” and seasonally adjust the existing home
sales data so that month-to-month and quarter-to-quarter comparisons can be
observed without seasonal variances distorting the overall picture. The annual
rate for a particular month represents what the total number of sales for a
year would be if the relative pace for that month were maintained for 12
consecutive months. Seasonal adjustments, which are determined by using the
X-12 Variant created by the Census Bureau, are then used to factor out seasonal
variances in resale activity.
For example, home sales in the winter months are generally much slower than
sales in the summer months, primarily because of differences in weather. These
disparities tell us little about actual trends in the housing market because
they are mostly a result of seasonal variances. Therefore, seasonal variances
are removed and an annualized rate is calculated to gain a greater perspective
on how the resale market is actually performing. Seasonally-adjusted annualized
figures are reported for both monthly and quarterly EHS series.
You can see the difference between SAAR figures and those that are “not
seasonally adjusted and annualized” in the table “Existing Home Sales”. The
seasonally adjusted annual rate of existing-home sales in June of 2010 was 5.37
million units, while the unadjusted figure is 564,000 units.
Seasonal trends alone are also much more apparent. Unadjusted home sales in
the core winter months – January and February – are significantly lower across
all regions – compared with activity in other months.
In addition to home sales, the EHS series includes figures on average (or
mean) and median home prices. Unless you work with data on a regular basis, you
may not be 100% clear on the meaning of different averages and why you might
prefer one over another. Many economic indicators, such as home price data, are
meant to sum up information on a very large population made up of very
different individual measurements (i.e., many homes, in many areas, with a wide
variety of prices). We summarize this information by expressing data in
averages—a measure of the central tendency of the group.
The averages found most often in published economic data are means
(sometimes called averages) and medians (also sometimes called an average
though less frequently). While there are a few different types of means, we’ll
discuss the arithmetic mean. The mean is found by adding up the values of the
items we want to average (i.e., a group of home prices) and dividing by the
number of items. If you have 5 homes that have recently sold for $100,000;
$150,000; $170,000; $190,000, and $250,000, we sum them ($860,000) and divide
by 5. Thus, our mean average home price is $172,000.
The median is another measure of the central tendency. We line the homes up
by value (smallest to largest), and find the value of the middle item. If we
only had four items in our set, our median would be the mean of the second and
third items.
Oftentimes, the mean is higher than the median. The mean is generally
higher in the case of home prices because some homes can have a VERY high price
and that raises the average. The median is probably a better idea of what is
“typical”. Consequently, NAR focuses more on the median price of homes. Now
that you know the difference, you can use this concept to understand a wide
variety of economic variables.
So when you read that “existing home sales registered 5.37 million units in
June of 2010” and that the median sales price was $183,700, you can recognize
that that many home sales did not actually occur during the month at that
price. Also note, that many other measures of housing activity – new home
sales, housing starts, housing permits – are also presented in seasonally
adjusted annualized rates, means and medians.
For
more information about NAR statistics and the methodology behind them, visit www.realtor.org/research.