A case for segmenting data in market trends

By
Real Estate Appraiser

A case for segmenting data in market trends

I’m hearing so much buzz about the rising prices nationally, but real estate is local. Our market in Washtenaw County has largely been increasing in price, but some of the data observed is skewed in my opinion.

Take the following example: all sales in the Lincoln school district as exposed through the Ann Arbor Board of Realtors MLS (note, there are some duplicate listings due to data-sharing agreements) compared over time, to only those that are identified as arm’s length transactions (e.g., no distress sales).

The data for one year measured 12/1/12 compared to 12/1/13 indicates the following:

12/1/12 410 sales for the year with median sales price of $128,000 and median price per sqft of $72.23

12/1/13 401 sales for the year with median sales price of $153,450 and median price per sqft of $85.25

This is an increase in price over this one year period of 19.88% for the pure median and 18.03% on price per square foot.

Take away distress sales and the following is indicated:

12/1/12 166 sales for the year with median sales price of $144,500 and median price per sqft of $82.67

12/1/13 260 sales for the year with median sales price of $165,000 and median price per sqft of $93.22

This is an increase in price over this one year period of 14.19% and for the price per square foot of 12.76%

Which one would you consider more accurate?

To me comparing apples with apples is more accurate, which means normally the price per square foot change and only arm’s length sales, or 12.76% for this one year period, compared to 19.88% which could be used but really relates to a decrease in the number of distressed sales. You can see this by the total number that would be considered distressed on 12/1/12 (410-166=244 distressed) compared to 12/1/13 (401-260=141 distressed).

 

The purpose of this post is to encourage you to compare apples to apples for pricing trends as opposed to a lump sum. While both indicate rising prices in this instance, the difference in the rate is significant when the number of distress sales have declined to a large point.

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Topic:
Real Estate Market Trends
Location:
Michigan Washtenaw County Ypsilanti Twp
Tags:
market trends
washtenaw county
lincoln schools

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Rainer
262,787
Dinah Stallworth-Lewis
Priority Real Estate LLC - 318.332.8281 - Natchitoches, LA
NATCHITOCHES, LA HOMES FOR SALE

Rachel,

I like the way you compare trends in your market.  I agree with you, no matter how the data is analyzed lately it is showing an increase in prices.

Dec 27, 2013 09:13 AM #9
Rainmaker
1,317,701
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

I think having both of these groups of statistics is helpful.  It gives a comprehensive view of the market both with distressed sales included and without.

Dec 27, 2013 10:47 AM #10
Rainmaker
1,561,684
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

Are you telling real estate agents to "trend" market reports to the actual markets, or to the general public?  IMHO any agent worth their salt will know the former.

Dec 27, 2013 11:22 AM #11
Rainmaker
2,824,240
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Town's trends do really reflect in market data quite a lot in my case in my area.

Dec 27, 2013 11:22 AM #12
Rainer
16,449
Rachel Massey, SRA, AI-RRS
Ann Arbor, MI
Proudly appraising Washtenaw County since 1989
Sorry Carla, I don't understand your question. Could you rephrase it? Yes Jay, it is good to see the difference. I do think some of the estimates get inflated due to the lessening degree of distress sales and that needs to get considered. If I am going to make a market condition adjustment I want it to reflect the market in which the subject competes, or for market value, the arms length sales.
Dec 27, 2013 11:45 AM #13
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Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Rachel, so true. Most of the time, we just pick up base information and start comparing - and sometimes take larger area to prove the point that overall market is up! However, a small segment may not have that much increase in price!

Dec 27, 2013 01:09 PM #14
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Ralph Gorgoglione
Maui Life Homes / Metro Life Homes - Kihei, HI
Hawaii and California Real Estate (310) 497-9407

Rachel, you make a good observation. When one fine-tunes the comparison model to more of an apples-to-apples scenario, the more accurate the results. Thanks!

Dec 27, 2013 03:27 PM #15
Rainer
16,449
Rachel Massey, SRA, AI-RRS
Ann Arbor, MI
Proudly appraising Washtenaw County since 1989
Thank you all for the comments. Price trends can vary depending on the data you use. Good idea to use more than one measure and then reconcile to what you believes makes most sense in your LOCAL market.
Dec 27, 2013 07:17 PM #16
Rainmaker
3,366,076
Nina Hollander
Coldwell Banker Realty - Charlotte, NC
Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor

I am forever reminding my clients that real estate is not national, and not even local, but truly hyperlocal.

Dec 27, 2013 08:36 PM #17
Rainmaker
1,378,459
Cheryl Ritchie
RE/MAX Leading Edge www.GoldenResults.com - Huntingtown, MD
Southern Maryland 301-980-7566

It does boil down to local knowledge and realizing how to professionally interpret your local data.

Dec 27, 2013 09:08 PM #18
Rainmaker
1,395,377
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

Rachel, your analysis make perfect sense to compare apples to apples. However, distress sales are usually included and tend to bring down market values.

Dec 27, 2013 10:15 PM #19
Rainer
16,449
Rachel Massey, SRA, AI-RRS
Ann Arbor, MI
Proudly appraising Washtenaw County since 1989
Try segmenting the sales with the distressed sales as well as without. And my market to distressed sales, if included, actually bring the trend up not down. The reason that they bring the price trend up, is that we have fewer of them. As the number of them decline the price trends appear to be higher than they actually are as evidenced by the graph above.
Dec 27, 2013 10:22 PM #20
Rainer
16,449
Rachel Massey, SRA, AI-RRS
Ann Arbor, MI
Proudly appraising Washtenaw County since 1989
Sorry about the confusing last post. I need to make sure to view my voice texting before I post.
Dec 27, 2013 10:25 PM #21
Rainmaker
415,979
Bill and MaryAnn Wagner
Wagner Real Estate Group - Ocean City, NJ
Jersey Shore and South Jersey Real Estate

Rachel,

You're correct about segmenting the market. Days on market can also be negatively affected by distressed sales.

Dec 27, 2013 10:41 PM #22
Rainmaker
2,531,709
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Yes to seeing what is in front of our faces and also hearing about elsewhere too

Dec 27, 2013 11:59 PM #23
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Peter Pfann @ eXp Realty Pfanntastic Properties in Victoria, Since 1986.
eXp Realty, Victoria BC www.pfanntastic.com - Victoria, BC
Talk To or Text Peter 250-213-9490

Hi Rachel,

My point exactly, from town to town, region to region, real estate trends, markets and future is so very local, that using anything but local information to educate local clients would be unprofessional

Happy Holidays and a Pfanntastic 2014

Dec 28, 2013 12:13 AM #24
Rainer
16,449
Rachel Massey, SRA, AI-RRS
Ann Arbor, MI
Proudly appraising Washtenaw County since 1989
Thanks Peter, everything in real estate is local in my opinion. What happens in your market if you take one school district and compare all sales to only arms length sales? I would love to see what other areas would show. Can you try it over a two year period like this?
Dec 28, 2013 12:30 AM #25
Rainmaker
1,080,379
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Rachel, it is so misleading for a buyer or seller to read a headline and think it will definitely apply to their situation. Great job explaining the data in your area.

Dec 28, 2013 02:22 PM #26
Rainer
16,449
Rachel Massey, SRA, AI-RRS
Ann Arbor, MI
Proudly appraising Washtenaw County since 1989
Thanks Sharon :)
Dec 28, 2013 09:38 PM #27
Rainer
328,994
Jimmy Faulkner
Florida. Homes Realty & Mortgage - Wantagh, NY
The Best Of St. Augustine

You have to stay local with any market data. Banks require that their appraisals are all from local data unless circumstances require going out of market area called matched pairs, which is unusual.

Dec 29, 2013 09:43 AM #28
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Rainer
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Rachel Massey, SRA, AI-RRS

Proudly appraising Washtenaw County since 1989
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