The methodology used in calculating existing-home sales statistics is simple. The monthly EHS economic indicator is based on a representative sample of 210 Boards/MLSs. The home sales data (raw data) is divided into four census regions: Northeast, South, Midwest, and West. NAR economists carefully evaluate the raw sales volume from the participating Boards/MLSs to ensure accuracy. Some of the possible problems with the data could be caused by:
- Changes in association/board/MLS physical jurisdiction
- Changes in MLS vendors and /or staff
- Lack of response by associations/boards
- Erroneous data
Once the "problematic data" have been extricated from the sample, the aggregated raw volume figures are weighted to represent sales activity for each region of the country accurately. This is also called the non-seasonally adjusted volume. The weights are benchmarked every ten years to reflect shifts in regional demand. (For more information on NAR's weighting system) The non-seasonally adjusted volume is then converted into seasonally-adjusted annualized rates. (See section on Seasonal Adjustments)
Median prices are computed for the nation and four census regions on a monthly basis. Median prices are also calculated for selected metropolitan areas and are reported quarterly to give adequate time for data gathering.
There is a slight degree of seasonal variation in reporting selling prices. Sales prices generally experience the largest gains in the summer months, as favorable weather conditions create an ideal atmosphere for buying and selling a home. Demand for homes usually hits its seasonal peak in the third quarter. Strong price appreciation generally follows suit and then declines moderately over the next three months. Despite the slight seasonal variances in the price series, sales prices are not seasonally adjusted. This is because seasonal variances are extremely fickle and difficult to gauge. Furthermore, changes in the characteristics and size of a home have a more pronounced effect on home prices.
Seasonal Adjustment-Annualized Rate
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 would represent the total number of sales for a year if the relative pace for that month was maintained for 12 consecutive months. Seasonal adjustments, determined by using the X-13 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 primarily a result of seasonal variances. Therefore, we need to remove seasonal variances and create an annualized rate to gain a greater perspective on how the resale market is performing. Seasonally-adjusted annualized figures are reported for both our monthly and quarterly reports. For more on seasonality in housing data, please visit the topic on our blog.
Each year, the National Association of Realtors revises Seasonal Adjustment Factors and Seasonally Adjusted Annual Rate data with the February release of revised (final) December data.
Data affected by this Annual Seasonal Factor revision includes national and regional data for:
- Seasonally Adjusted Annual Rates of Sales for Existing Homes, Single-family Homes, Condo/Co-op Homes
- Months' Supply of Inventory for Existing Homes, Single-family Homes, Condo/Co-op Homes
In the Annual Seasonal Factor revision, seasonally adjusted data and components affected by seasonally adjusted data for the past three years are revised (i.e., the 2015 release of revised December 2014 data will include revisions for 2012, 2013, and 2014).
The NAR Research group continues to work diligently on expanding our regional coverage to ensure accurate representation among different areas of the nation. Enhancing our sample size has also prompted the Research group to develop new reports that will help our members utilize the information to their full advantage.
Sales prices are currently reported only at the regional and national levels and for selected metropolitan areas.
The staff is also working on generating statistics that will follow the nine census divisions. This, in effect, will create a new data series that will further refine the information to a more useful level for our members.