August 2011 Market Update
"There are 3 kinds of lies: Lies, Damned Lies, and Statistics"
- Mark Twain
There's no doubt that real estate is an interesting topic of conversation for the public. The media, in an attempt to feed this appetite for real estate news, often publishes interesting pieces of real estate information that help sell papers. Due to this heavy dose of constant real estate news, it's important to understand how the data is collected and how to interpret the information.
Below are the 3 most commonly misunderstood statistics in the media:
1) Housing starts rise 1.9%!
(http://www.vancouversun.com/life/Housing+starts+cent+June/5083165/story.html)
This shouldn't really matter to buyers or sellers out there. While this is related to the real estate market, it is more relevant for the construction industry than it is to the resale housing market.
Remember, these are new home construction figures: not sales or pricing numbers. Unless you’re a construction worker or materials’ supplier, this type of information is largely irrelevant to your real estate decision-making process.
2) Home sales drop 42%!
(http://www.cbc.ca/canada/british-columbia/story/2008/10/02/bc-real-estate-values-vancouver-september.html)
This kind of information is important for buyers and sellers to know and also helpful for realtors to use. A drop in home sales is sometimes a precursor to lower prices down the road. That said, there are a multitude of reasons that home sales could slow that wouldn’t also result in a corresponding drop in prices.
It is therefore important to remember that these are unit sale figures, not price figures. These statistics are generally also seasonally adjusted to reflect the fact that sales tend to be slower in the winter and summer as opposed to the spring and fall. You should talk to a professional to see whether a drop in sales velocity is because of a slowing market or because of some other extraneous event.
3) Average House Prices Expected to Rise 13% this year!
(http://www.vancouversun.com/business/Home+prices+rise+cent+this+year+report/5030251/story.html)
This is the most misunderstood of the media reports that come out. Yes, it is true that Average Canadian Home Prices in 2011 will likely show a significant increase over 2010; however, as we’re already half way through the year, much of the increase has already occurred.
Many real estate boards also release data that shows the Benchmark price of a home. This is a much more accurate look at the current state of the real estate market than the average price. The Benchmark price is the current price of an average home in a given market area rather than the average price of all of the homes in a given market area. The difference is subtle, but substantive. The average price simply takes the price of all units sold in a given market area and divides it by the number of units sold. It therefore can be skewed by a strong luxury market, like the one currently being experienced in many Metro Vancouver markets.
Remember to always read real estate statistics with an eye to these issues and you’ll become a more accurate analyst of the market.