Real estate professionals and economists who paid close attention to the monthly existing-home sales data provided by the National Association of Realtors were given a sharp shock recently when it was revealed in the Chicago Tribune that the association had been consistently reporting bad figures each and every month since January 2007, when the housing crisis really took hold.

NAR admits to ‘over-estimating’ existing home sales data.

As part of the trade association’s benchmark revision reporting, new data has allowed a more accurate depiction of the housing market, with home sales data being revised downward by 14.6 percent for 2010 while for the total period of 2007 to 2010, resale home sales were revised downward by 14.3 percent.

Lawrence Yun, chief economist at the NAR, explained that the association used the Multiple Listing Service (MLS) to track existing home sales. However, he pointed out that the MLS database is limited to data from sales listed by realtors only. Sales of homes listed by owners are excluded from the database, and so the MLS only provides a narrow view of real estate markets. He also pointed out that because the majority of homeowners use realtors, sales figures for realtor listed homes became artificially inflated.

Also, the NAR often made a number of assumptions each month, based on data from the 2000 Census, which is clearly outdated.

The bad data is particularly concerning because the US economy is so closely linked to the fortunes of its real estate markets, and real estate policies followed by both Congress and the Federal Reserve have been based in part of the NAR’s existing sales data.

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