Bad Housing Numbers Muddied by Government Interference

Published February 21, 2011

Housing market data are notoriously bad—no two houses are alike, and many buyers and sellers are driven by emotion. We don’t know the prices of houses that didn’t get sold, nor do we have data on such things as decorating allowances used to report a higher price than what the buyer actually paid.

And since the financial crisis, the federal government has been intervening in the housing market in ways that make the data even more difficult to interpret.

Consider the four main sources of national housing price information: The Federal Housing Finance Agency (FHFA), the National Association of Realtors, the S&P/Case-Shiller Home Price Indices, and’s Real Estate Market Reports. Each has a slightly different release schedule, so the last set of coinciding data is for the third quarter of 2010.

Down, Down, Down
The FHFA reported seasonally adjusted prices fell 3.2 percent between 2009 and 2010. The National Association of Realtors looks at two main measures, the national median price and the total volume of existing home sales; in the third quarter the organization reported the national median price was down 0.2 percent and the volume of sales was down by 25.3 percent.

Case-Shiller’s national price index declined 1.65 percent in the third quarter, and’s Home Value Index declined 4.3 percent during that quarter. Furthermore, the firm estimates 23.3 percent of single-family homeowners owed more money than their house was worth.

Of course, September 2010 is practically ancient history in the financial markets. The numbers trickling in for the end of the year don’t look much better, however. Case-Shiller reports a decline of 1.6 percent in prices in its 20-city composite through the end of November. The Realtors show a very slight 0.2 percent increase in the median price, with a 19.5 percent decline in units sold for the fourth quarter of 2010 versus the fourth quarter of 2009.’s fourth quarter numbers are truly depressing: A 5.9 percent year-over-year price decline leading to 27.0 percent of homeowners holding negative equity.

Delay in Correction
All these numbers show the effects of the rollback of the 2009 and 2010 first-time homebuyer tax credits. Buyers in 2009 received $8,000 for purchases made before December 1, 2009. In 2010, the amount declined to $7,500 for houses that went under contract by April 30, 2010 and closed by September 30, 2010.

“While the tax credits did not hurt the housing market, they did delay its bottom by interrupting the housing correction that was taking place,” said Stan Humphries,’s chief economist, in a statement.

As most first-time homebuyers are looking for smaller and cheaper houses than people who are trading between houses, they tend to drag median data down. That explains why the Realtors’ data shows a stable median price amid falling volume. And, in fact, the trade group is optimistic.

“Overall home prices have been steady and are up slightly,” says Walter Moloney, director of public affairs for the National Association of Realtors. “Our report on metro area home prices this week shows most areas are up slightly or down slightly, and our forecast is for pretty much the same pattern this year.”

The NAR’s official forecast predicts the national median price will rise about 0.5 percent and selling prices will rise 8 percent, based on a gradual drawdown in inventory.

Different Problems
Are the Realtors right? In a normal recession, prices for housing follow the growth in the overall economy, so a recovery in prices would be expected to arrive when unemployment rates improve and corporate profits recover. This recession is different, though; it was caused by a financial crisis that, in turn, was caused by speculation in real estate.

The U.S. government has been intervening in the market, but only the first-time homebuyer credit seems to have had a supportive effect on prices and transactions. The Home Affordable Modification Program (HAMP) had been used by 673,919 homeowners by the end of 2010, covering fewer than one percent of the 112,451,000 owner-occupied housing units in the United States. That’s not stimulating the market; it may even be holding it back.

Interest rates are extremely low, but the banks that were stunned by the financial crisis aren’t lending money, nor are there new incentives for them to do so.

Upside to Ineffective Intervention
The government’s failure to intervene effectively is, in a way, good news for those trying to foresee the next turn in the numbers.

That is, as bad as some sets of real-estate sales numbers are, they may show more accurate price data than believed. The fourth-quarter declines, free of the effects of the tax credit, show the market is correcting itself. The next numbers in the next three quarters may look as dismal as in the fourth quarter, but they could well be the last throes of decline.

Ann C. Logue ([email protected]) is a financial analyst, instructor of finance at the University of Illinois-Chicago, and freelance writer who covers business and technology issues.