I grow tired of reading about real estate in the newspapers, since every single story and every single statistic contradicts the one that came before it.
You can make numbers say anything!
When I was in Idaho a couple of weeks ago, I was tasked with writing my article for The Grid, which appeared in last week’s issue. The article itself was about “bully offers” and how I think we’ve seen the end of them, since the market seems to be cooling, but that statement on my part – that the market was cooling, needed to be addressed.
My editor told me that TREB numbers showed the market was actually up! I said that I didn’t care what the TREB numbers say, because they are always massaged and presented to look positive, and that my gut feeling alone is worth more than the average set of numbers.
After all: you can make numbers say anything you want.
I remember back in the last week of June, having a conversation with the top agent in my office, whereby we were both shaking our heads.
“Man, it’s slow out there,” he said to me. “I’ve got semi’s sitting at $600,000. Sitting! It’s crazy!”
The gut-feeling from an experienced Realtor, or more to the point – the collective gut feelings from a group of experienced Realtors, who are pounding the pavement every single day, is worth more than a set of numbers in the newspaper.
It irks me that every newspaper is guilty of selectively using numbers to uphold whatever it is that they’re trying to say.
It’s incumbent upon the reader to understand that the numbers presented are only a few of the numbers out there, and that they should really do their own homework if they’re interested.
Every newspaper, magazine, and television news channel uses numbers to prove their point, whatever that point may be.
And I’m going to show you just how easy this is to do, by using real numbers.
Here are four completely contradictory points, all backed up with numbers:
1) “The Real Estate Market Is Down!”
This would make a great headline, wouldn’t it?
It’s very vague, and you or I know that, but what about the masses?
Sales in July of 2012 were 7,570, and sales in July of 2011 were 7,683 – meaning that sales from July 2011 to July 2012 were down about 1.5%.
So using these numbers, you could say that the “real estate” is “down” and decide how much further you want to explain that.
Of course, many people just read headlines, and wouldn’t actually get that far.
2) “The Real Estate Market Is Up!”
Let’s use prices instead of volume this time.
The average price in July of 2012 was $476,947, and in July of 2011 it was $458,046.
We could quite easily make a claim (or a headline) that “Real Estate” is either “Up” or “Down” depending on which numbers we want to use to back it up.
Personally, I could care less about volume.
Show me the person that cares if 20,000,000 shares of Facebook traded hands yesterday, or just 10,000,000, so long as the shares value increased from $19.50 to $20.50.
I find that the media selectively uses both sales volume and sale prices to generalize about “The Real Estate Market,” depending on what they want those numbers to say.
3) “Real Estate Prices Are Up In July 2012.”
Let’s get more specific now.
Clearly, points #1 and #2 were vague, and you’d hope that they wouldn’t appear in a reputable newspaper.
Let’s get more specific and talk about both PRICE and DATE – July of 2012.
“Real Estate Prices Are Up In July 2012.” Can we back that up?
Sure we can! The average price was $476,947 in 2012, and only $458,046 in 2011. Prices are up 4.1%.
Clearly, prices are UP!
4) “Real Estate Prices Are Down In July 2012.”
Oh boy.
What did we just say above?
Aren’t prices UP? Didn’t we establish that?
Well, how about these numbers:
The average price was $476,947 in July of 2012, and $508,622 in June of 2012. Prices are down 6.2%.
So prices are down in July…..right?
Well, prices are up from July-to-July (year to year), but prices are down from June-to-July (month to month).
You would think that there’s some universally acceptable way of interpreting these sales statistics, but alas, there isn’t.
You can use whatever numbers you like, however you like, to make whatever point you are trying to make.
Here is what I would want to say:
5) Prices Are Down From June to July – At An Increasing Rate, Year-Over Year
I would first want to disclose that the sales volume ALWAYS drops from June to July, and that the average house price ALWAYS drops from June to July as well.
Then, I would suggest we look at the drop-off this year relative to last year.
The average house price in June of 2011 was $474,223, and in July it dropped 3.4% to $458,046.
The average house price in June of 2012 was $508,622, and in July it dropped 6.2% to $476,947.
House prices always dip in the summer, so we simply cannot compare prices from June to July.
We know that the market in general is up in 2012 over 2011, so we can’t simply look at the prices from July of 2011 and July of 2012.
Instead, why not look at the drop-offs in prices from June-to-July in 2011, and June-to-July in 2012?
Prices dropped 3.4% last year, and 6.2% this year.
Although the average price is higher this year, it’s decreasing at a faster rate than last year.
Of course, all this might me moot when we get August numbers, and I dare anybody to use these numbers to predict what happens in the Fall market: boom or bust?
But what I would like, is to see more transparency among newspapers, magazines, and news stations when it comes to making blanket statements like “The Real Estate Market Is Falling.” The statistics used to come to this conclusion should not be buried in the fine print.
I find a lot of articles to be misleading, but it’s not the content that’s misleading – it’s the way it’s presented!
For example, the cover story in this month’s Toronto Life talks about a red-hot market, bidding-wars, price-gouging, and of course it glorifies one-in-a-thousand tactics like “using Maple Leaf tickets to sweeten the deal.” Well, this story uses prices and incidents that took place 2-3 months ago, which is an eternity in real estate! As I said above – the market cooled off significantly in late-June, and we didn’t see any of the same actions as we did in March, April, and May!
That saying, “No news is good news” should come with a second part to it:
Old news, is not news. Using stories from 2-3 months ago and presenting them today is misleading, and for those people who don’t buy Toronto Life and just see the headline on the cover, they won’t get to dig deeper and see what’s really going on.
You can make numbers say anything you want, but you can make news say anything you want as well, as we learned from Toronto Life.
As with anything else in life, it’s truly up to the individual to investigate, analyze, and absorb what he or she is reading, and come to an independent conclusion.
Life rewards those who work for it…
Market Bull
at 8:10 am
It all comes down to bias, I’m afraid. If you’re a bear, you see the negative, if you’re a bull (like me), you accentuate the positive. What tickles me are the stock pumpers like Garth Turner and Ben Rabidoux who are joyously grave-dancing all over the Vancouver real estate market at present, in a desperate bid for vindication – having been so wrong for so long. Hilarious.
Ralph Cramdown
at 11:14 am
I don’t think there’s a lot of joy in the bear camp. Some schadenfreude, maybe, but the bears generally know that a bust will have very large spillover effects on the broader economy as a good fraction of those with careers in real estate and construction see their incomes shrink. Who’d wish that on a province or a country they love?
JC
at 5:38 pm
I think you’re making a pretty hefty assumption there that the bears who are gloating over any perceived cooling of the market are SMART enough to see any spillover effects on the broader economy.
Most, in my opinion are not exactly long-term thinkers.
ScottRP
at 10:13 pm
Pretty idealistic view of people you hold there, Ralph.
Joe Q.
at 8:53 am
Vancouver average home prices are down 12% YOY (July 2012 vs. July 2012). And I’d love to know which stocks Ben Rabidoux is pumping. Can you send me a link?
Market Bull
at 7:54 pm
Ya, right on Joe Q. Vancouver only advanced about a gagillion percent in the past 5 years; so wow – a whole 12 % drop, must be “bargain time” now. Hilarious.
P.S. Rabidoux is a Wall Street hack now and a stock pumper extraordinaire – such naïveté.
Joe Q.
at 11:44 pm
You don’t think a 12% drop in one year is significant — in a city that so many Realtors said was immune to price drops? That’s a ~ $100k drop in average house price in just one year. Think of how many Vancouverites are now underwater on their mortgages, and this in a city where RE investment and speculation is one of the largest “industries”. It’s not about picking up bargains, it’s about watching out for the collateral damage as the Vancouver RE market implodes.
Joe Q.
at 11:48 pm
As for Rabidoux, the company he works for is mhanson.com — a mortgage and housing market analysis firm. It’s hardly Wall Street, and Rabidoux barely ever mentions the stock market. If you have some evidence that he is a stock pumper, please enlighten the rest of us by sharing it.
George
at 8:21 am
I agree with all your points. The real issue, of course, is that the media is in the business to grab attention and sell, not to inform. We must rely on our own intelligence and information gathering to piece together some semblance of the truth.
Ralph Cramdown
at 8:27 am
Wow, are you allowed to say this stuff as a card carrying member? I don’t think it’s entirely fair to blame the media. Sure, they put their most junior, inexperienced reporters on the RE stats beat, and they seem to move on or move up before they get around to asking hard questions, but it’s the Boards that are the true source of all this bumf. They’ve focused on mean average numbers forever when they knew it this overstated growth and median was a much better measure. They spin, spin spin about sales mix changes when the averages don’t go the right way, and if all else fails, the spokesmen just plain lie (witness the Vancouver board — on track to become the first board in history [OK, I just made that stat up] to declare a balanced market with a 10% sales/listings ratio).
Market Bull
at 2:13 pm
Correction. CREA and TREB have continuously stated for several years now that both average and median prices tend to distort the perception of the real estate market. Which they do. Hence the introduction of the HPI, which they’ve been working on since 2007. Unfortunately, the lunatic fringe segment of the bear camp have seized on this development as some sort of all-encompassing evil conspiracy filled with falsehoods specifically designed to further dupe the general public. How diabolical.
Ralph Cramdown
at 5:07 pm
*This* lunatic generally doesn’t ascribe to malice what can be explained by incompetence. We’ve just had front row seats to a spectacular real estate bust, and NAR economists were calling a bottom and/or exclaiming that it was a great time to buy pretty much every month. Anyone remember David Lereah, chief economist for the NAR? His book, “Are You Missing the Real Estate Boom?: Why Home Values and Other Real Estate Investments Will Climb Through The End of The Decade—And How to Profit From Them” was released in 2005. It was re-titled “Why the Real Estate Boom Will Not Bust—And How You Can Profit from It” in 2006. Lord save us all from real estate board economists. Now they’ve got Lawrence Yun, restater-in-chief: http://www.businessweek.com/news/2011-12-14/home-sale-data-will-be-revised-back-to-2007-realtor-group-says.html
If CREA and TREB wanted a credible HPI without spending five years tinkering, they could have just provided raw date to the National Bank/Teranet HPI: Credible economics and less lag. If TREB was serious about their incredible HPI, they’d feature it in their news releases.
Market Bull
at 11:18 pm
The NB / Teranet index measures a different segment of data. It reports “closed transactions ” as registered in land regisrty offices scattered throughout our great land. Specifically through the original POLARIS system in Ontario.
One of the best in the world, by the way.
Closed transactions also include private deals, which should be excluded but are not.
Ralph Cramdown
at 10:30 am
So what does TREB data measure? Firm deals? It seems to take them 3-4 days at end of month to get the numbers out, so I’ve assumed they’re waiting for all agents to update MLS deal status. On the other hand, their mid-month numbers come out within a day or two, so maybe it isn’t as all-inclusive as the monthlies. And of course, their quoted prior year’s month’s sales never matches what they reported at the time, so presumably they’re constantly reporting a comparison of this year’s deals including an unknown number that will fall through and last year’s sales ex-cancels.
Those are just my guesses. If you (or anyone else) could shed some light or point to an explanatory document, I’m sure a number of us would appreciate it.
Oh yeah, POLARIS. Great system, which is why McGump effectively sold it to help with a budget deficit (isn’t that called “burning the furniture”?) Now I can walk into any land office in Ontario and, for the princely sum of $9, discover property sale, title and mortgage details, BUT ONLY FOR PROPERTIES IN THAT COUNTY. The guy behind the counter can see the whole province, but he’s not allowed to show me, I’m expected to call my RE lawyer, hire a process server, or drive to the property’s county seat. All hail McGump!
Joe Q.
at 9:12 am
The best way to read the numbers is at http://guava.ca/indicators.html — good for longitudinal comparisons, year-over-year, listings to sales ratios, etc.
Erin
at 3:01 pm
Great link! Thanks!
Vlad
at 10:03 am
Good post, David.
I just go by the For Sale signs in my area. When it takes more than a week for something to sell, you can tell things are cooling.
moonbeam!
at 10:51 am
Also don’t discount timing & chance — people who are ready & looking to buy will still make an offer on a property that attracts them. Sales will happen no matter what (except maybe in parts of the USA but that’s another story)….
IanC
at 12:25 pm
With 5-star condos popping up – what does average price mean?
The average price can go up – but what if larger more expensive homes take on a disproportionate share in sales compared to the year before.
Average prices go up – but your house and most houses in general drop in value.
Ralph Cramdown
at 4:49 pm
If you’re not doing an average amount of renovations, hiring a contractor every few years or driving to the building supplies store every few months, your property isn’t keeping up, even if house size preference doesn’t change.
JC
at 5:48 pm
And then you have the powers that be introducing the HPI “on behalf of Realtors”. Excuse me? I want nothing to do with further muddying the waters. TREB blaming the double land transfer tax on any slowdown is pathetic. Makes me embarrassed that I handed over my $900 “membership dues” to them in June, thats for sure.
I’ve always said that you can use statistics say just about anything. It doesn’t help with the media failing to actually DO research and creating a self-fulfilling prophecy. “Lets bash real estate enough and voila… the market is down. See? We told you so!”
Has the market cooled? Yes. It always does in the summer – but this year is different. It’s very quiet. Some condos and detached homes that would have been snapped up in days in early June are still on the market.
Look at the numbers of updates for condos in C08. SCs are few and far between.
Joe Q.
at 8:57 am
TREB blaming the double land transfer tax on any slowdown is pathetic.
Agreed, and I was upset (but not surprised) that more reporters didn’t call them on that one, rather than printing the TREB press release pretty much verbatim. It was a somewhat NAR-esque comment and certainly took their credibility down a couple of notches (in my worthless opinion, at least).
Market Bull
at 11:27 am
Since its inception, the double LTT has been a drag on the real estate market in the 416. All things being equal, both sales volumes and average prices would have been even higher without it.
I agree that it is dissapointing that TREB is only now ascribing the injustice of the tax in relation to current MLS sales volumes. I understand that there is a rather vigorous political campaign currently underway at TREB to put pressure on City Hall to eliminate the tax, but dragging up the issue only now appears somewhat disingenuous.
jeff316
at 2:15 pm
I think it would be interesting to see a study on the land transfer tax to see how it influenced the timing of buyers’ purchases and their choice of property type.
I can see the tax being a drag long-term but also a boost short-term as buyers skip the condo/bungalow/”starter home” market and go for larger and costlier, sooner.
Susie S.
at 12:51 pm
TREB blaming the double land transfer tax on any slowdown is pathetic.
– I 100% agree! This is the biggest propaganda bull I’ve ever heard. It is worse than when they blamed mortgage rule changes last year only to watch sales/prices to keep going up. Hypocrites beyond measure.
JC
at 6:32 pm
I should have perhaps added a “now” in that sentence… “TREB blaming the double land transfer tax on any slowdown now is pathetic”
Yes, sales were affected by its introduction 4 years ago, and they are lobbying for it to be withdrawn, but to dredge it up as a primary factor to a slowdown now is rather disingenuous.
TREB likes to think they speak on behalf of all Realtors, but they do not speak for me.
SH
at 10:09 pm
I’m not sure it’s entirely fair to blame the media — or at least I’d be curious which ones out there are doing such a shoddy job presenting data. In the print media that I write for, data is ALWAYS presented in context of year over year and/or month over month comparisons and seasonal factors are always mentioned. That being said, I think from a consumer perspective, I do agree that price is the factor that matters most. I would think volume matters as an important economic indicator, but I can see how that has little meaning the average consumer beyond knowing whether it may be indicative of a buyer’s or seller’s market. Still, as financial/economy reporters, not everything we write is supposed to be “news you can use” — we are obligated to report things like housing starts and resale market, etc. as a matter of course when covering the economy.
As for the Toronto Life article (which I haven’t read), I thought monthly publications are always planned out months in advance, putting them at a disadvantage if they want to cover a hot topic that has seasonal fluctuations and where the market can change dramatically in a short period…
JTJB
at 11:21 am
Finally an article that clear things up!! I just wish more people would actually read it.
There are way too many people out there who believe the media. That’s why they allow themselves this kind of “behaviour”. If most people could think for themselves and actually open their eyes (see last remark in the article) not only it would do them good but it would make things more sane for everyone who is on the market at the same time as them.
One other thing. I have been on the market for a house for 8 months and I have witnessed the price falling since May.
People buying expensive houses negotiate their price lower by a lot more than the average Joe. Go figure.
I hope the price will keep lowering to a more decent level.
I do not want to economy to suffer and I don’t think it would really, but the craziness and ugliness of the real estate market that was last Winter needs to stay at bay.