Apparently, Dr. Jay Butler, the oft-quoted director of real-estate studies at Arizona State University’s Morrison School of Management and Agribusiness pooched his numbers in his April report.
As was widely reported (including on this very blog), Butler reported a YOY increase in April’s resale numbers.
But…. Butler included Trustee sales — what most call a “foreclosure” — many of which wind up with the bank taking back the home.
Now if a Trustee sale results in an individual, be that a home buyer, or real estate investor, buying the home, then in my opinion that should be counted as a “sale”. It was an “arms length transaction” and the home changed “ownership”.
However, if no one bites at the Trustee sale (which happens frequently) and the home is returned to the bank, that’s not exactly a “sale” — and certainly shouldn’t be counted as such.
So Butler blew it. So did I for regurgitating his numbers without fact-checking them.
Butler’s excuse? (source)
Butler said he agrees that trustee sales should not be lumped in with routine resales and would be reported separately from now on.
The market has changed so rapidly, he said, that the methodology he once relied on for accurate sales data suddenly has become obsolete.
Until recently, Butler said, trustee sales represented a very small portion of overall sales activity and often involved an actual sale, such as at a foreclosure auction, which is why he has always included them.
But as the foreclosure rate began to climb in late 2007, more and more cases involved lenders simply assuming ownership of the home, still considered a trustee sale and still included in Butler’s reports.
“Suddenly has become obsolete”?? No, it was flawed from the beginning.
My excuse? A lousy one — trusting an “authority” (and one I’ve called out before no less) to practice sound fundamentals when it comes to data analysis.
Not to defend Butler (or myself), but it IS difficult to pin down accurate home sales numbers.
Also from the article comes this:
Smith’s opinion was based on information from the multiple-listing service, which records every home sale involving a professional real-estate agent.
That statement is patently false. The MLS does NOT record every home sale involving a professional (or amateur) real estate agent.
The MLS data is only as good as what is put into it. Some agents are slow to change the status of homes, and sometimes homes are mis-categorized as to type — I know a couple of agents who always seem to call a manufactured home or a condo a single-family residence. Some new home sales are in the MLS, and some are not. Naturally, FSBO (For Sale By Owner) homes are not in the MLS and some real property sales (likely a relatively small number) are conducted outside the MLS. There are even “out of area” sales reported in our MLS.
That said, short of pouring over actual recorded sales at the County Assessors office (and they make mistakes too, trust me), the MLS probably offers the single best source for home sale (and listing) information. If one assumes that the “error rate” is consistent over time, then the MLS can provide a good indication of trends — but not 100% carved-in-stone accuracy.
Butler is getting absolutely hammered in the comments on an Arizona Republic article regarding this matter (same article that I quoted above). To his credit, he did admit his mistake. On the other hand, I’m not a big fan of fixing it “from now on” and would like to see previous reports be updated.
I for one will from this day hence stick to reporting and analyzing actual MLS data only. Yes, it may be inherently flawed, but there really seems no way to avoid that from any source. At least by sticking to the MLS, I can control what I publish here and not rely on others — regardless of their “expertise”.