Existing Home Sales…Up or Down?

Or…both? 

The National Association of Realtors publishes existing home sales data.  Every month.  Their monthly statistical release is watched very closely by the real estate and financial markets. 

This week, they posted their latest findings.  They reported that nation-wide existing home sales were up 10% over the prior month.   Of the four regions tracked, the ‘West’ showed the smallest increase of 5.0% and the ‘Midwest’ had the largest at 14.5%.

But a closer look at the data shows existing home sales actually declined last month.  By 8.5% from the prior month.  Again, looking at the four regions tracked, the ‘Midwest’ showed the smallest decline of only 1.2% and the ‘Northeast’ had the largest drop in sales at 12.3%.   Which begs the question:  How can the NAR report existing home sales increased when they actually fell?   A good question.

Well, they use a thing called the “Seasonally Adjusted Annual Rate,” or SAAR, when finalizing their figures.  What is SAAR?  If you do some further digging on the NAR site, you’ll find this defninition:

“Seasonal adjustment is the process of estimating and removing seasonal effects from a time series to better refeal certain non-seasonal features such as underlying trends and business cycles.”

Hmmm…clear as mud right?  Lets try again.

In simple terms, a SAAR adjustment is used to compare sales trends when a specific item’s sales pattern follows a similar cycle each year.   Take bathing suits.  Sales are probably pretty slow in December.  But brisk in May.  So how can you compare December bathing suit sales to May sales, year over year, to determine if sales trending up or down?  

Lets make some assumptions.  Assume December bathing suit (BS) sales are the lowest each year and May BS sales are the highest.   Further, analysis shows December BS sales are ususally 50% of May BS sales.  In this case, the SAAR for December BS sales would be 200%.  In this way, every month would have its own SAAR for BS sales. 

Which brings us back to the Existing Homes Sales figures from the NAR.   Seasonally adjusted, they increased last month.  In actuality, home sales declined.  By 8.5% over the prior month.   

Sure, home sales usually decline in winter months.  Every year.  But to me, telling the public that home sales increased when they actually fell is, well, a lot of BS.