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33 Comments on When Is a 20% Drop in Average Prices Really a 0% Drop in Average Prices?
Nice work on this, Tim! To really get value out of statistics, it's important to understand what factors contributed to a change from one period to another. You've done a great job of finding 'the markets within the market.'
You really need to know your local market to make since of the data you are looking at. The smaller the area the better the results will be.
Tim, nice way to present it. I have to tell you it is a constant debate at our board. We are in the process of revamping how we do the stat's as in the past we have included all listings listed by Ann Arbor Area Board members, including listings we take outside our county.
With Washtenaw being a high selling county you list a few outside of it and bingo it looks like our average home prices have come way down. It is much better to just look at very hyper local stat's like you have been doing
It is so confusing to sellers and buyers. You want to low ball every home even in a area that is short on supply. And selling close to asking price.
I was wondering why so many comments on an old post. I got featured! Thanks to whoever.
The problem with most real estate statistics is taking the time to figure out where the numbers are coming from and what your potential error size could be. Unfortunately, newspapers and most people just want headline numbers and really don't want to be bothered with the details.
I think that the best scenario might be a more localized Case-Shiller index. They follow individual homes over time but they only cover 20 major cities. It Atlanta, that's just too big and diverse of an area.
But even the Case-Shiller Index can be skewed by a high percentage of foreclosures. If my particular home gets trashed after foreclosure and goes from $200,000 to $100,000, does that mean the values of my neighbors' homes have gone done 50%? It just means that my home has been trashed and is only worth $100,0000 now.
Good reminder to study our numbers carefully. Also if everything is compared to the best years (2005-2007ish) then of course there will be huge differences. Keep a good perspective.
Hi Tim ~ it is much more difficult to track changes in real estate values than most people acknowledge. You need to track very similar properties over time and that's close to impossible.
I thought of Case-Shiller as I was reading your post and then noticed you mentioned them in your comment. I think that they put together their model because of this difficulty of tracking prices. I have a vague memory of reading an article about a study they did years ago. They traced changes in property values in a neighborhood in Holland (if I'm remembering correctly) where they were able to compare like properties over a long period of time. We don't have that luxury typically - properties vary dramatically in terms of level of renovation, condition, site, location, etc etc etc. and we're almost never looking at the same unchanged property over time.
The other complicating factor is that sales figures are really tracking what people are spending - not the type of property they're gettng for the money.
Lots of food for thought in your post.
Liz
Good illustration Tim.
In the end the only number that counts to a seller is what's going on with my house.
NEARBY local data is helpful, national data less so.
This a real good way to put it Tim. I see generalizations for stats that just don't jive for ever situation/area.
Great post.
Just today somebody asked us to for sales stats for a zip code. That zip code covers a lot. I asked what more specifically they are looking for. This is also why we do hyper local reports. ~Rita
The days on market stat drives me nuts too. it is often used to say look at this, the market is getting worse becasue DOM is 15 days higher. it could also be that the homes that extend the period arte overpriced with realtors afraid to ask for price drops. I like to focus on inventory, and real sales.
Many good points. We are constantly reminded that you have to look at the local market.
what a great blog post i talk to our new members all the time and point out the same exact thing. i'm glad you decided to compile your stats on specific neighborhoods instead of alowing your readers and customers to be so easily misdirected. It takes a very savvy agent to notice this concern let alone address it in such a dynamic way. I only wish all of our new members would read your blog it would clearly display the benefits of writing your blogs and market reports on specific neighborhoods instead of for counties or cities as a whole. keep up all the great work tim!
Tim... excellent point. You made this statement... "The bottom line is real estate is local. Use national numbers with caution and also metro wide numbers with caution. Know the big picture but also know what's happening in your very local area."
This ticks me off, because we have been seeing this all over. Good example.. just the other day, someone stated that consumer is the highest it's been in 6 years. Okay, where did they get that number from? Are things being construed? Left out? Just to make this sound good, to get the stock market in the right direction, to make rates rise, so we stay away from inflation?
Overall, just so much out there and it's seems to be very easy to make numbers work in your favor. I am speaking to plenty of people who are hurting. Businesses are still closing,... etc, etc.
Okay, sorry, didn't mean to hijack your post. But just that you bring up a good point and I am seeing this to often in the media also.
Real estate isn't local... it is hyper local. Even ZIP codes are too big in many places. There are so many things to take into account... dollar volume, prices strata, activity at specific price points... It would take a fuzzy computer to deal with it. I guess we call that fuzzy computer an experienced real estate agent.
This is so true. In the city of Tempe there are areas that may average 100,000 or so and a mile or two away there are million dollar homes. Then, everything in between that range in the same zip code. I agree with the idea of keeping it very local.
A good example of how you can bend the numbers to prove whatever you want them to prove!
Yup. I've been trying to get the media's attention on this for prox 18 mos. In my market the # of lower end sales (Palos Verdes, CA, where low end is anything under $1 million) were up 28% a year ago, whereas the higher end (over $1.5 million) were down 58% 2009 vs 2008. This led to (generally clueless) media to report stomach-churning drops in average (and median) prices, as you point out.
Today, because getting a high end loan is no longer analogous to a visit to your proctologist, the >$1.5 market is coming back (# of sales up 75% vs last year to date), which the lower end is holding steady so, as I predicated in last month's client newsletter, we will soon see reports of price increases simply due to the converse of what happened the last couple of years. Doesn't mean any given house has gone up (or down), but it sure does mislead people, while giving the media what they want -- an attention-grabbing headline.
Dana, You're right. They're just looking for a headline. Explaining something like this is just too much work. And people also just want a simple number they can use in calculations.