The downturn came in 2007, so we've known it's been bad going on five years. What we did not know until now is that the data we relied on to tell us how bad, is, in fact, unreliable.
I'm talking about home prices, and the "sales and inventory data that have been reported since January 2007" by the National Association of Realtors (NAR). Specifically, the number of "sales of previously owned homes ... will be revised down" next week, because of double counting and the inclusion of "some new home data that should have been filtered out."
As for what that means, the Reuters story led with the only reasonable conclusion: The downward revision amounts to a "much weaker housing market than previously thought."
At the risk of over-interpreting this debacle, it is amazing how these types of miscalculations invariably go in the same direction: from a version that's too rosy to something that looks worse.
After the financial crisis began in 2007-2008, credit ratings services like Moody's and Standard & Poor's were strongly criticized for conflicts of interest: The companies which paid them to rate bond issues were the very companies issuing the bonds.
Is it any less reasonable to observe a similar conflict of interest regarding data reports from a real estate trade group that has a direct interest in home sales?
Note, too, that the coming revision is the upshot of a report earlier this year by the real estate analysis firm CoreLogic, which said the NAR may be overstating existing home sales "by as much as 20 percent."
But in this already bizarre news story, the most bizarre sentence may be this: "The ... revisions will be published next Wednesday and will not affect house prices."
Well. We'll have to wait and discover exactly how THAT can be accurate. Check my math, but: If home sales are overstated, there's a greater imbalance of too many sellers/too few buyers.
Which is to say, homes are harder to sell. So how does that NOT affect house prices?
More than any other market, real estate has reflected the steadily growing deflationary trend. This latest news is painfully consistent with the pace and direction of that trend. The current issue of The Elliott Wave Financial Forecast offers a "CPI Annual Rate of Change" chart, and extended commentary on deflation and the economy. It includes the reminder that "deflation will be the pre-eminent feature of the bear market...."