The Real Estate Data being used by most of the financial media and in many economic reports could be off by at least 120% in many areas and in one major metropolitan area (Central Ohio), the number used for home sales alone could be off by a whopping 374% (see chart) . To put it another way, this means that possibly only 1 out of every 5 sales are being reported.

As the Real Estate market as a whole is a major part of the US economy, this finding could have a major impact on the world markets. The questions first asked are, how could this have happened and how could this be?

It all comes down to this. Statistics = lies, lies and damn lies.

I will show you how this happened, how it became possible and the ripple effect it may have on almost every major market out there. As to the why, you will have to decide for yourself.

Since Real Estate in the US has been used as the reason for a lot of the good and bad in the markets world wide recently, with the very real possibility of the data being off by not just 10%, 20% , or even 50% but by well over 100%, this needs to be examined closely. With the Real Estate data being possibly wrong by over 100%, what does that mean for you as an Investor?

As a Real Estate Investor I have surmised that the figures were way off for at least 10 years now and started really looking into it a couple of years ago to prove to myself that my theory that housing and Real Estate sales were being grossly under reported was indeed correct.

The first reason being that they never included any properties that were sold by owner or not using an Agent. They also did not include any properties conveyed in a trust which is a more and more common practice these days.

I looked into and proved to myself that my theory was correct, but never really had any reason to bring it to anyone’s attention until now. I had always thought that someone would have the smarts to pick this up somewhere, sometime.

But, be that as it may, it has not happened as far as I can tell, so here is the proof as it were. Hopefully someone with more resources or time will further extrapolate on this from here on out. Personally though, I could care less if they do as long as you, my readers know about it and take it into account because you can use this to give you an edge in your investing.

To actually test my theory for this story, what better place to start than to look at Forbes, which I happen to like a lot. They recently did a story on the most stable Real Estate markets to invest in and number three was Columbus, Ohio.

So, I picked Columbus to test see if the information I had seen over the years was still true. Boy was I ever surprised. Here is what they said and here is a link to the article.

“3. Columbus, Ohio

Median home price: $153,900

Annual price change from 2006: -1.2%

Projected price change to 2008: 3.49%

Columbus, like many other cities in Ohio, has witnessed a deteriorating subprime lending situation. While things aren’t going to turn around instantly–projections list Columbus as the 17th worst market for delinquencies (out of 40)–the city’s sales rate is picking up. Based on Moody’s Economy.com calculations, next year Columbus should boast the eighth-fastest sales rate of the 40 markets examined.”

OK, so far so good. They list Moody’s, Economics.com as the source. not the worst source in the world even if I do think they charge way too much, but if you go to Economics.com and check out where they got their info from, they list the NAR or National Association of Realtors as one of their sources. The NAR in turn gets their information their local boards .

The NAR dominates as the source used for most Real Estate statistics.

That was fine and dandy but I want to see the raw data, not some hand me down info that I have to assume was correct. Here is what I found going down that particular Rabbit Hole.

I first went to Columbus, Ohio board to see what they had to say for sales and could not find anything specifically just for for December home sales in Franklin county directly as they also include all of Franklin, Delaware, Fayette, Madison, Morrow and Union Counties and parts of Champaign, Clark, Licking, Fairfield, Hocking, Knox, Logan, Marian, Pickaway and Ross Counties. But even so, with all of these counties they said the total number of sales was only 1,434 in December, 2007.

After some further searching I did turn up this link that spoke about Trendgraphix and they supposedly got their info from the Board for just Franklin county and the number of homes sold was only 818.

Then I went to the Franklin County Auditor to find out what really went on concerning actual transfers of property as they are the true keepers of the hard data as they actually do the transfers of title.

As you will see, using either of the numbers given by the Agents gives you grossly misleading information when compared to what even just the Franklin County Auditor shows what really happened as far as actual property transfers in December, 2007.

How Far Off Are The Numbers?

The total number of property transfers in just Franklin County alone was, are you ready for this? I added them up and it was a staggering 3,834.

Now mind you some of these are commercial property transfers, inheritances and the like, but even taking out 20% or 767 of the the number of transfers for those, it still gives us 3,067 properties transferred in December, 2007 in just Franklin County alone. Unscientifically I am going to use this as the actual number of residential transfers. If you want to assign a higher number to commercial and other transfers be my guest but regardless if you do or not, the numbers are still very large.

So, by using the 818 number, it is only 21% of the actual number of transfers! There are over 2,249 transfers unaccounted for. Does anyone else besides me find this astounding? And this is using just the data from Franklin county, not the other more rural counties which have a tendency in my experience to do far more sales by owner and transfers through trusts as a lot of farms are sold this way.

The bottom line is that the statistics being used for home sales are in many cases are so far off as to be rendered useless.

Can you imagine if the actual Dow or any other indice was off by this much? Yet, numbers like these are touted and used everywhere.

What does this mean and how does it impact things? Well, first off the total number of home sales is off by apparently 374.9%. Do you think that might impact anything else? Here is what it looks like to me.

The numbers indicate what I have suspected for a long time and that is that For Sale By Owners sales out number those that are sold by Real Estate Agents. If these numbers hold up and I have looked up other counties previously and they did, it means the at least in Columbus, Ohio is that Agents only account for a 1 out of every 5 home sales. This to me comes as o a little surprising. I was pretty sure it was going to come in under 50% but, 20%? Wow, is all I can say.

It means the that average Joe and Joette are a lot more successful at selling their property than anyone would have you believe by a big, big margin. Point in fact if these numbers bear out, it would indicate that you are far more likely to sell your property yourself than through an Agent. With such online services as Craigslist , Zillow , 888EZToOwn and many others to assist with selling a home, it is no surprise.

It also means that the actual robustness of the Real Estate market itself is being under-reported by 100% or more in many areas. At least in Columbus, Ohio and while we just saw what happened when a whole bunch of people assumed something, I have noticed this in other states as well and suspect this is the case nationwide.

When you have market numbers for an area as large as the Columbus Metro area being off by this much, if we extrapolate even just a little, I can see how this is going to skew every decision and assumption being made about the Mortgage Market, the Housing Market, and the Bond Market overall and how bad or good the US Economy really is.

Plus, in the case with trust transfers, none of the pricing is ever going to be reported as a real estate transfer either.

I am not even going to begin to question why or how this could have gone on for so long and been so wrong. Although I do have some suspicions which I will keep to myself for now. First and foremost though is that it appears to be simply a matter of laziness on the people putting together these statistics. Although with billions if not hundreds of billions of dollars at stake, I still find it hard to believe that it has gone on for this long.

Now this does not mean that all of the data is this far off but where there is smoke there is often fire. In fact as I mentioned in some areas, I am not going to be surprised if their is not even more gross miscounts.

But, even if my numbers are off by 50%, it still makes the numbers that are being used at least for home sales off by over 100% and for something this big, it is like having a herd of Pink Elephants living in Times Square and no one noticing.

I am going to do some digging in some other states and I will let you know what I turn up. Anyone want to take any bets?

So, now that you know most of what I do, I would love to get your feedback on this.

Andrew Anderson

This entry was posted on Saturday, January 26th, 2008 at 3:37 pm and is filed under Bonds, Economics, Investing, Real Estate, The Market. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.