Disputes Over NAR’s Data Raise Questions Over Realtors’ Role In The Housing Market Bubble

Recent allegations that the National Association of Realtors has been inflating home sales data raise questions over the group’s role in the real estate bubble and the still struggling housing market.

Economists use its home sales figures to gauge the health of both housing markets and the overall economy. But those numbers are being called into question. Saying NAR’s home sales are inflated by 15 to 20 percent, a housing analytics firm, CoreLogic, found that the trade group’s figures contradict its data as well as information from other researchers. Perhaps a non-biased government agency like the U.S. Census Bureau shome sales, housing markets, NARhould take over reporting the all-important home sales data.

Mortgage lenders are often blamed for causing the home price bubble, while NAR’s role in the crisis has been largely ignored. Lenders can choose to approve mortgage applications or not, but they do not set home prices. Lenders consider the appraised home value, but that value is based on other nearby home values. If the entire market if overpriced, then individual overpriced homes are perceived as valued appropriately. How much subprime mortgages contributed to the home price bubble is unclear. Perhaps making mortgages available to more people helped increase demand for homes, but subprime mortgages were meant to make homeownership possible for more people, such as minorities and low- and moderate-income first-time homebuyers.

Buyers and sellers working with their real estate agents establish home values. Real estate agents were indeed a factor in driving up home values. Just remember the television programs showing how to get rich quickly by flipping homes.

At least one commentator, is calling for Congressional investigation into NAR’s role in the real estate bubble, stating that: “If an investigation revealed the Realtor organization as firmly complicit in the buildup of the nation’s housing distortion, wouldn’t that work to rein-in this self interested and irresponsible private industry group?”

NAR may not be irresponsible but it is not an unbiased government agency. It’s an industry trade group working for real estate agents, a consistent cheerleader for real estate purchasing.

Take for example its statement in May 2005 that housing affordability had improved for two consecutive quarters, keeping housing within reach in most areas. As run in Business Wire, NAR said the typical household had 132.9 percent of the income needed to purchase a home at the median existing-home price, which was $188,800. A median-income family earning $56,323 could afford a home costing $250,900. Rising incomes, it said, had offset higher mortgage rates and rising home prices, and monthly mortgage payments remained historically low despite rising home prices that had outpaced rising incomes, said its chief economist at the time.

“There would have to be a significant rise in mortgage interest rates for affordability to decline to the point where the typical family could only afford a median-priced home,” said Al Mansell, president of NAR at the time and CEO of Coldwell Banker Residential Brokerage in Salt Lake City. “None of the forecast models show interest rates getting even close to that point, underscoring the soundness of housing as an investment for the foreseeable future.”

Oops. Guess he got that one wrong.

Mansell conceded homes had become more expensive but pointed out that, fortunately for home buyers, low down payment mortgages were available.