Are You Ready for the Data Dance?

So is everyone getting ready for the data dance? What is the data dance you ask? Well, it’s becoming one of the largest spectator sports this side of property lot lines. It’s the monthly, quarterly, semi-annual, annual display of data points and trend lines put forth by just about every known real estate related player in today’s market.

There are plenty of players from the National Association of Realtors, to local Realtor boards to the American Association of Homebuilders, Zillow, Trulia, RealtyTrac, Foreclosurethis.com, Foreclosurethat.com, itsashortsale.com, noitsnot.com, and dozens and dozens of others telling us the market is falling, no it’s improving, the shadow inventory is coming, no the shadow inventory is hiding, prices are falling, no stabilizing, no increasing, interest rates are doing something.

Why now?  Because now we have two months of data to compare to last year! Or, we have one month to compare to the last month, or we have this year to compare to something else. You can almost predict with certainty the headlines coming. Here locally I expect to see our local Salt Lake Board proclaim home sales are up over last year (this IS factually true – for the first two months of the year home sales are up 2% from the same period last year). But, how will they describe next month, when I can predict with absolute certainty that home sales will drop versus last year?

How do I know this, because I know that last year’s March and April number were elevated thanks to the homebuyer tax credit. There is no way this year’s transaction activity will match last year’s over the same time period. Does that mean the market is tanking? Hardly. It simply means there are different market forces impacting activity levels. This is the part that gets lost time and again in all of the data spewed out for public consumption. It’s the lack of context.

Without context, the data is for all intents and purposes, worthless. We all know real estate activity is local and influenced by local economic conditions. Yet, we constantly see dialogues (even here on ActiveRain) using national statistics to somehow explain local conditions. With the proliferation of "data"providers in the real estate industry, it is my belief, that rather than enhancing the overall level of discourse and insight, we are muddying the waters more and more and confusing the public. Rather than focusing on the sound bites that simple averages make exceptionally easy to throw out, it is more critical now than ever that real estate consumers (whether buying or selling) understand what the numbers "mean."

Here are some examples from the past two months of data for Salt Lake County, what do each mean on their own (if anything)?

Unit Sales up 2% - is the market improving?

Average Sale prices down over 12% year over year – is the market tanking?

So which is it? OK, let’s add some more detail to the mix. What if I said, based on current inventory levels and sales the past two months we have just over ten months of inventory available? What If that level is just six months based on a 12-month sales cycle? How do these numbers impact buyers and sellers differently? (and yes they do). What role does seasonality play in the reported data (for those geographic areas that have seasonal fluctuations).  The bottom line is all of various data points mean absolutely nothing if not defined by the context of the local real estate market and local economic conditions.

I want to encourage consumers to not fall victim to the data dance. You need to be able to cut through the hyperbole and understand what data elements (especially local data) impact you and how. Local real estate professionals can assist in that process. I’ve seen too many consumers make poor decisions based on thier lack of understanding the data and what it meant to them (or what it should have meant to them).