I have vowed to bring the truth to HousingDoom wherever I find it, even if I have to go to…Bloodhound Realty’s Blog (you have no idea how hard this is).
Gregg Swann of Bloodhound wrote a rebuttal to my Monday post he entitled "Was BusinessWeek bamboozled? "Twist" doesn’t know what she doesn’t know.." . It was a copy of an e-mail he dashed off to Peter Coy barely two hours after I posted on Monday about accuracy problems with MLS reports. Mr. Coy has to read this tripe as part of his job, but unless you enjoy watching car crashes, don’t bother. Where it gets really interesting is if you scroll down to the comments of John L. Wake. Wake distributes the Home Sale Newsletter, and has been a realtor here in the Phoenix area since 2003. As much as I hate to send Doomers over there [and don't troll guys- I hate it when they do that over here] Wake’s comments were too informative to pass up.
At any rate, here’s what Wake said about the ARMLS, and about my analysis: [And a rather amazed hat tip to Bloodhound for allowing a comment that defended me so nicely.]
Twist made some errors in her analysis. For example, the inventory numbers ARMLS publishes are for one day, usually the 15th of the month the report is published, while the rest of the data in the report is for the previous whole month. It’s very confusing. [It is to be assumed that the MLS reports are a one day snapshot (as I indicated)- usually the last day of the month. The report indicates TOTAL monthly sales, TOTAL new listings, and TOTAL inventory left at the end of the month. The reports come out in the middle of the month, but that's usually to allow them time to compile the report- it would be a little odd to pull the inventory numbers the day of the report- they would be two weeks too late to include in a report from the previous month.]
However, I also saw that strangeness in the ARMLS published data in 2005 and considered the possibility I had stumbled upon evidence of some vast conspiracy that would explain the rapid rise in prices following the anomalies of August 2004 and January 2005.
There were a lot of things wrong with that idea, however. In particular the fact that there were spikes in 2 months. That suggests to me a data error. [I concur- However, here's the problem with the errors- Suppose I tell you to make a right on Main Street to get to the market, when you should have made a left. If the market is to the left, you will still be in the wrong spot --whether my intentions were malicious, or the result of an honest error. I'm not looking for a villain to sue here- the lawyers are the only winners in that battle. I'm looking for an independent review of MLS reports, so consumers can understand what these numbers mean, and what they don't.]
If there really were some malicious factor going on, it wouldn’t all appear in one month or two months. It would be a trend over several months. [I concur, but while I'm not seeing evidence that manipulation did happen, a gradual manipulation would be tougher to catch. That always remains a risk in any industry that lacks accountability in their reports.]
The more likely culprit was a simple data error. ARMLS has made [those errors] in the past ,and it’s reports are so oblique its hard to know what they mean. Prehaps ARMLS was making a correction to their public data and packed them all into one or two months, without noting it on the reports.
After I went into ARMLS directly and did an analysis similar to Greg’s, it was obvious that the problem was in the reports, and that there was no anomaly in the core data. The only anomaly was in the ARMLS public reports.
The purpose of ARMLS is not to provide data to the public. They have much more important priorities and a very difficult job. [I concur that the ARMLS was not developed, nor is it maintained, to provide data to the public. However, the reports ARE written to provide data for the public, who should be made aware of the underlying flaws. In most industries providing accurate information is considered an important priority, and in some instances, inaccurate information is considered feloneous.]
Providing public reports was obviously a very low priority for ARMLS and it showed in their public reports. [I couldn't have said it better myself.]
ARMLS is, however, doing a much better job on their public reports. Nevertheless, their public reports need a complete makeover.
I say amen, and thank you to Wake for an excellent analysis of the accuracy problem. L also concurred with Wake’s analysis:
Here’s a novice that looks at the data and realizes what the MLS is for, and how easily it can be fooled. I’ve never had a good agent who thought that data from ARMLS meant anything. Its nearly impossible to come up with any reliable stats for 2003 thru 2005, as fast as property was flipping.
In a normal market where people are buying homes to live in and some even to rent, you might be able generate reports that are somewhat reliable- but when you have the same house selling 3,4,& even 5 times in a year, how would you be able to chart this…..?Anybody that didn’t know this was happening wasn’t doing much real estate.
Wake’s conclusion is my conclusion- the public reports need a complete makeover.
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Amen Twist,
I love how he starts out saying all the negatives about your analysis and then goes on tho admit the flaws in the data. If it is not ultimately for public consumption then why publish reports based on it. Kudos to you, I think you may have found a chink in this dragon’s armor.
Metroplexual-
I’m afraid the folks over there don’t understand my position at all. It’s true I’m a housing bear- but there is a big difference between being a bear and being anti-real estate.
You read a lot now about how the negative press is hurting the market- I disagree. The rising rate of foreclosures, the home prices out of whack with fundamentals, the excessive inventory were aided and abetted by the Greenspan Fed’s money policies- but one of the big culprits was inaccurate POSITIVE media- “You’d better buy now before RE is out of your reach,” “Real estate doesn’t go down.” – you know the lines.
Now people drive around and see the “For Sale” signs, they hear their neighbors problems, and know it doesn’t jive with the happy talk. Permabulls like Lereah (and apparently Swann) are a bigger enemy to the RE market than the bears are.
Just like on Wall St., there are opportunites in any market, as long as you have accurate information to make sound decisions on. I’m convinced accurate information will do more to “correct” the market than anything else.
I probably should have done a better job of explaining what caused the anomolies. I realized from the Bloodhound comments the math wasn’t obvious to everyone.
I used algebra (to estimate the missing variable “delisted”)and ratios to expose some double entry bookkeeping corrections. By expose I’m not saying the corrections are nefarious- in bookkeeping, that is what is required by GAAP. “Generally Accepted Accounting Procedures.”
According to GAAP, if I make a mistake last month (say I neglected to enter an invoice)I don’t go back and change that error after the books are balanced- I make an entry this month. The best of accountants do this- although an excessive number of corrections can be indicative of sloppy work in the first place.
For end of the year tax purposes, it doesn’t matter when I entered that invoice- the total is the same. However, if that was a big invoice, I’ve understated last month’s income and overstated it this month. If I go to the stockholders and claim that “proves” our income is way up this month, then an honest mistake turns into a dishonest one.
The sales:delistings ratio shifts gradually over time. The ratio is higher in good markets, lower in bad ones. When you see those big jumps, it tells you that that month the MOM info is meaningless, because you can’t tell what is real, and what is part of the correction.
Swann didn’t understand he was making my case for me- he was saying my numbers didn’t match the MLS- I’m saying the same thing. I appreciated Wake’s explanation of why that happened.
Hi guys,
I just got back from donating plasma at CBS. The very nice lady in the next couch was a long serving Canadian realtor who left that some years ago and now is an enthusiastic interior decorator. The majority of folk in the RIEC are decent, hard working people.
Twist’s work on MLS accuracy has been a real eye-opener for me. From what very little I’ve read, I think The Canadian Real Estate Association’s MLS is somewhat more uniform than NAR’s, where the regional associations have quite a bit of independence. I’ll need to check this out.
Anyway, the public stats released by NAR and affiliates usually come with this disclaimer at the bottom (emphasis, in letters of fire, mine):
Indeed! And that’s all Twist’s trying to do. It occurred to me last night that there must be research papers at NAR, Harvard’s Joint Housing Institute and innumerable Bizschools on this very subject. This stuff badly needs an airing out in public.
The realtor’s fury is amazing, you can almost feel them sweatin (yuck!)as they read your posts. As you know, I’ve always been a little slow, but it really does seems like the “public data” released from ARMLS, like the MLS sheet itself, is “not really for the public” with all that statement implies.
Almost all realtors hand these documents(MLS sheets) out like open house cookies and transmit them across state lines (but more of that later). In every state they all seem to contain a similar, curious disclosure, goes something like: “Information deemed reliable but not guaranteed. Buyer to verify all information.” in AZ ;or the more simple “”GLVAR Deems Information Reliable But Not Guaranteed”.
Now “deemed reliable” seems to mean that the “listing ” realtor will treat this information as accurate without any further investigation, and often even if they have reasonable indications to the contrary. If the MLS sheet says it has 10 rooms and you can only find 8 of them during physical inspection with the listing agent, check a month later and see if the MLS sheet has been changed. The MLS touts a 4 car garage, but it works only if you own Tonka vehicles, well thats what the owner reported. Approximately 10% of the stated square footage not there, no problem, its only “deemed accurate”. Under “Equity” it shows the asking price, but government records show the house was bought last month for 60% of the asking price and fully mortgaged, don’t worry, MLS didn’t mean “that kind of equity”.
And my favorite category MLS “Taxes/Year”. How many letters and e-mails sent by realtors with the MLS sheets to frozen potential buyers up north note that in states like Florida this historic number is radically different than , and often a small fraction of, what you, dear consumer will pay in taxes for the very next year if you buy the home. And, as realtors in association, did some opposed mandatory written disclosure of that fact, even for out-of- state buyers? Would not want to discourage the snowbirds, not in this market! Don’t worry about it, the documents realtors suggest we all use have numerous clauses and more disclosures designed solely to limit realtor/broker liability for all such information “deemed reliable”.
No, the MLS sheet itself is obviously not safe for or intended for public consumption. There is one problem however. I have often wondered why then, are there two different versions of this document. The one is refered to by some as the “realtors version” (whose is the other?), but until you insist on seeing it specifically, you probably will not. Unlike the other version, the “realtor version” contains bits of additional “professional” information which is obvious not relevant to buyers, information like cumulative days on market, and another favorite of mine, whether some super large commission is available to the buyers agent for bring a buyer to the closing table. But don’t worry, your agent’s advice may also only be “deemed reliable”.
I too appreciated Wake’s candor. The idea that the ARMLS could have made corrections and “packed them all into one or two months without noting it on the reports” is a stark admission that anyone, realtors, consumers, money magazine Editors, had best rely on this data only for…for… for…Well, as I said, I am a little slow.
It seems to me that Twists use of the data, with appropriate caveats that it may have problems, is not what the realtors are really complaining about. They simply would prefer to control all the data themselves. Come on guys, if the non-public version will make Twists reporting more accurate, I’m sure she would love for you to give her access, as a public service. What could be wrong with that Mr. Swann? You purport to be a consumer oriented professional (no dual brokerage/ I do commend you for that), give up the real facts if Twist’s are wrong. How has recording of listings and delistings affected publically reported inventory levels over the last 18 months? I’m sure BusinessWeek would also like to know the “real truth”.
As my previous comments suggested, this date glitch almost looked like someone was “tapping the brakes” given its effects on month over month inventory levels at a crucial time. I doubt that anyone familiar with my prior comments can seriously consider me a “conspiracy theory” buff. Maybe the guy who did that AMLS inventory stuff was out sick a few times, who knows, but Twist was right to point it out and reasonable, not extreme, in the tenative conclusions she drew.
It seems to me that somebody or some organization makes this ARMLS “data”, much like the MLS sheets, available to the public, at least the curiously selected, non-insider versions used in realtor press releases. Could they really say, under oath, that they do not use this information with the intent to induce people to buy real estate and generate commissions(with MLS sheets) and to help shape public opinion of real estate markets ( with ARMLS)? And can they say, again under oath, that two versions of such data exist for some reason other than to conceal information from consumers or to limit competition in their industry? Will they have to very soon?
Mr. Wake’s site says soemthing thing that is always very true: “Knowledge is Power”. With that power comes certain obligations, especially when dealing with the public regarding major financial transactions. The realtors, their associations and concerted action affilates may soon more fully understand this fact with a vigor they never expected when real estate just continued to go up in value. There are probably real “Bloodhounds” on this scent, not just overstuffed toy poodles like Mr. Swann. My money is on the big, mean dogs, whose “commissions” are called contingent fees or campaign materials.
Keep up the good work Twist.
Old Mike,
Now that’s twice in the last two weeks your comment has been ahead of my recent posts in many ways.
Seriously, give me a few URIs or article titles and I’ll happily edit links and footnotes into your efforts.
You’ve brought up several more points about MLS accuracy. I think it’s fair to say that before house prices turned nobody was too concerned about these statistics, but by now it’s fairly obvious to the aware that surprisingly many people depend critically on them. Once the issue gets out the the MSM the REIC will learn that their reports are not just throw-aways. They will need to undergo the same sort of scrutiny as SARBOX controlled companies or, say, epidemioligists have to endure. NAR’s instinctive first response will likely be toward increased secrecy to save immediate embarrassment (not to mention suits and arrests), but they will need credible stats to move RE off the bottom when that bottom really does occur. Part of our job in the bubblehead community will be to convince them that transparency pays.
It’s nevertheless interesting that some believe market information (which is defined by the listing and sales market) is not intended for public information.
This is where i have to disagree with you, respectfully. In a Laissez-Faire market (or free market for you non french readers), participants or potential participants would be free and open to see both open and closed transactions.
What if, for example, the NYSE hid all historical bid/ask prices of stocks? What if each executed trade were hidden from view so that only “ask” prices were displayed? Now, consider if the NYSE had a vested interest in keeping stock prices high (such as a percentage of dollar transaction comission structure). Most of us could see the obvious conflict of interest created by such intransparency. The Department of Justice agrees with me (at least) in saying that the NAR is perpetuating this kind of commission-based agenda by keeping its existing MLS’s closed from both discount brokers and users.
While I agree that in a true free market, information dealers would be free to sell or withhold information as they see fit, periodically, the government must step in when individuals are put at a disadvantage due to the monopolization (or oligopolization as in the NAR) of information. That the NAR engages in anticompetitive behavior is a foregone conclusion. That it affects everyone who buys a house, is also a given. The only question left is, how long can they perpetuate their stranglehold?
Thanks John. I’m not sure what URIs are but it sounds too much like the medical specialists I’ve been avoiding. Interesting how we both hit on the MLS systems standard disclaimers like an old bass on a tired fly. Its alot more fun when we are traveling the same direction. By the way, I appreciate the new “disclosures” on the sidebar and your new ratings system. It even seems to have migrated to some “foreign” sites also. It has not gone unnoticed and solves alot of the problems I have had. Now get in there and Kick a Swann!(no actual water fowl should ever be harassed or harmed as a result of this postings)
John Doe-
We have foxes in charge of the chicken market reports, with sheep reading and believing them.
Until people stand up and say enough- we’ll all be stuck with what the foxes dish out.
Old Mike -
A URI is that thing like http://example.com/ you’ll usually find near the top of just about any web page you’re browsing. If you just “copy” that line of text, then “paste” it onto your comment, Doom readers will be able to “follow the link” to the same page you were reading. With a little more fiddling, it’s possible to turn those things into clickable links on regular words.
John,
I believe you mean URL
Uniform Resource Locator
John and Metroplexual-
I liked Old Mike’s definition best. : )
My 11 year old daughter had to tell me what a URL is so don’t feel bad. I always saw the acronym and never thought much about a definition, which unusual for me. I guess it is just aplabet soup overload anymore.
OK Metro, you win (although from the following it’s sort of a photo finish). Here’s the straight dope from a google search on |URL versus URI|. Anyone out there who groks this without effort, please contact Doom Admin immediately, you’re hired!
Uniform Resource Locator:
My bad. As I said my daughter told me what a URL was, again I see so much alphabet soup. I was unaware of those other variants. The subtlety makes my brain hurt. John I plead ignorance. But thanks for teaching me something new. Now to torment my daughter with it.
Actually, you were correct and I should have used URL. My head hurts too, and I’m out-a-here for a while to do something different, like supper.
By the way, I picked up a bunch of stuff on my alerts about a big Urban Land Institute Conference (09Jan07) about RE trends that was held in Phoenix yesterday. Anyone local manage to get to it?
John, it was in the Republic today, front page, below the fold continuing on A-10. Headline as “Housing market to heal slowly”. Sorry no URL specimen to share.
Old Mike -
Got it! [1] Online version had a slightly different title from what you saw in the print version, which made the searching a bit more sporting. The article summarizes several of the sessions at yesterday’s big Urban Land Institute conference. I don’t see where it relates to your comment #4, though. There were pages of comments by Republic readers following the article.
———————————–
[1]: “Home market will heal slowly”, by Glen Creno, Arizona Republic, January 10, 2006.
John-
Here’s the scary reference in that Creno article:
Greg Vogel of the Land Advisors Organization said Valley home building will run at a rate of 35,000 to 40,000 new-home permits a year, way down from the 60,000 range of the past couple of years.
R.L. Brown says there are around 25,000 specs available in the Valley now- we have around 41,000 resale homes available. Less than 5,000 resale homes sold in December, so we have better than an 8 month supply of resale properties. What in the world are we going to do with 35,000-40,000 new homes?
Hi Twist,
I think your explanation the other day was clear that the BW piece. As we’ve discussed, at least in the case of Las Vegas, I really don’t believe it’s any sort of conspiracy… they ain’t that bright.
I believe they (GLVAR) are just inconsistent in how they query the database for the # of listed property at the end of the month and are not that concerned about it’s accuracy. My guess is that Pending sales were included in the Oct data, which is why we see the same, obviously erroneous, spikes in SFHs and Condos/Ths inventories.
Anyway, keep up the good work!
Rebel-
Kudos to you for your great investigative work. Thanks to your insight, we are seeing the problems in multiple MLSs.
I concur with the “sloppy work” theory. There is no accountability and no oversight, so why put a lot of effort into it?
Someone probably put the faulty report in Rheinberger’s hands, and she reported what she saw- a big inventory drop. Unfortunately in many ways, the misinformed are more dangerous than the deliberately dishonest.
Twist -
Off-topic, but I see you’re being quoted in a RisMedia article [1] that seems to be repeating a Review-Journal piece.
————————
[1]: “Las Vegas Home Prices Drop”, RisMedia / Las Vegas Review-Journal, January 11, 2007.
Hat tip to John for this great link to the blog of FL realtor Larry Walker, who reported the following experience last March with his local MLS:
Occasional “housekeeping” days to close out old transactions seems one likely cause of anomalies.
John M.
My brother-in-law was the keynote speaker at the ULI conference. What do you want to know? I will be seeing him this weekend.
At least he told me he was Keynoter, I guess the Mr. Pink is. Apparently Mr. Black is on a different job.
metroplexual -
If any of the speeches or presentations are available individually or, even better, collected in a conference proceedings online, links to these would be great.
(I don’t suppose your BiL would consider commenting or posting here … )
Speeches I might be able to get. However it is not likely that he would comment on any blog. He represents Virginia Tech and as such may have issues associated with that. Additionally, he is also a bit of a booster. He actually kind of laughs off my contention of the bubble even though I point out the house of cards (no pun intended) in the outstanding mortgage debt with the resets coming.
Life is good for him and he does not want to upset the apple cart. Again I will see what I can get my hands on.
John,
L sent this thumbnail summary of the ULI conference. [it's on the sidebar.] It sounded like the messages were rather mixed, but there is a recurrent theme:
By the way, despite the issues with MLS data, I do feel that NAR has a right to protect the data in their database and use it as they see fit. They are a PRIVATE organization operated for the benefit of their members, not the general public.
Here’s the mission/vision of NAR:
“The core purpose of the NATIONAL ASSOCIATION OF REALTORS® is to help its members become more profitable and successful.”
They ain’t a charity or here to serve the interests of the public as some claim.
I certainly feel strongly that they should not be able to distribute erroneous data without criticism, but I also feel strongly that they are allowed to keep what is rightfully theirs and not be forced/coerced to distrute that data. The MLS and it’s data is not for public consumption… it’s for their dues paying members.
Anyway, just thought I’d throw my 2 cents in on that topic… keep the change!
Rebel-
There are several issues with the data here. Charging for access to listings makes sense, as you say, this shouldn’t be a charity.
That being said however, if I were to advertise that “Twist’s Miracle Diet Pill is proven to make you lose 30 lbs. in 30 days!” it wouldn’t be unreasonable to ask me to show the supporting data.
If the NAR tells me that I should buy because appreciation is at X%, I don’t think it’s unreasonable to ask for similar substantiation.
Based on Walker’s comments there in Cocoa Beach, it sounds like the sloppiness is creating problems for realtors as well, and that accuracy and transparency in the reports is in everyone’s best interest.