12/21/2011
By David Urani, Research Analyst

Today we got an eye-opening piece of housing data for a different sort of reason. You see, the National Association of Realtors (NAR) admitted that it had been miscounting existing home sales for the past several years. They had already said significant revisions were on the way so the result isn't necessarily a huge surprise but it's still a staggering mistake. Home sales from 2007 through 2010 were revised down by 14%. Sales for 2010 were pulled down 15% from 4,908,000 to a new estimate of 4,190,000. So, all this time the most widely followed report on the existing home market has been overshot by a long way. After something like that you really have to wonder how much to believe from any ensuing reports. Nevertheless, the rates of change month to month have generally remained consistent so the NAR data may still be worth looking at in terms of the demand trends (whether the market is improving or not). So here we go, you can decide how much of it you want to believe:

November sales landed at 4.42 million annually, which is up 4% from October; I won't bother with the consensus estimate since it was pre-revision. The gains were broadly spread across all regions. This level of sales is the highest since January, and shows a good recovery since the modest pullback in September when sovereign debt had the world in hysteria. Inventory was revised down at the same rate as sales, so months supply remains consistent with the previous estimates. Housing supply of 2.58 million fell month to month from 2.74 million, while months supply is at 7.0 versus 7.7 previously.

All in all, sales were modestly higher month to month, which is what the market was expecting to happen, and that is the main takeaway. With sales at the second highest level for the year after January, we continue to have a reason to be encouraged by the direction demand has been headed. That being said, we aren't particularly seeing any big jumps but rather a slow creep higher. Housing stocks are flat on the report, which makes sense. Despite the revision, which investors already knew was coming, the sales trend is roughly what the market was looking for so expectations for growth will be the same.

But you still can't help but feel a little uncomfortable for being deceived that whole time.

David Urani
Wall Street Strategies