Statistics can be stupid.
I was looking at a summary of median housing price trends for San Diego that came through my inbox yesterday and was again reminded how stupid statistics can be. Actually, they can be downright dangerous if you don’t know what you are really looking at.
Of course, I honed in on the I-15 corridor communities, our core area, and specifically on Scripps Ranch, where we make our home. Based on annual median prices alone, one would conclude that everything is coming up roses. In fact, median sale prices were shown as increasing slightly in 2007 as compared to 2005. It’s a great time to buy!
Speaking as one whose feet are literally on the ground in this market, I assure you that 2007 prices did not outperform those of 2005, our peak year. That is, not if you are comparing “like” fruits. Using the data available through our Sandicor Multiple Listing Service, here is what I found:
The MLS data tells us that home prices haven’t changed a bit in the past two years in Scripps Ranch. Woo-hoo! Then, why all the whining about some housing market correction? Well, the median prices per square foot have changed. The median home purchased in 2007 was bigger; buyers are getting more for their money. And, of course, there are far fewer buyers.
This supports what I have been saying all along. Would-be buyers do exist, but they will commit when they perceive value. They are generally spending the same amount on a home, but they expect that home to be a better value than it was in 2005.
As a cautionary note, there are a couple of other things which are messing with even my statistics. First, in 2005 we had new homes flying off the shelf in Scripps, but those were rarely listed in the MLS. The builders didn’t need to do anything but put a few flags and balloons outside the models, and they certainly didn’t need to cooperate with the buyer’s agent. Today, the remaining unsold new home product is among our largest and pricier product, and list them in the MLS they must. Second, the statistics don’t reflect what I know to be true from my daily experiences. Even like-sized homes are not created equal. The homes which are selling at the higher price points today are generally in superior condition to their 2005 counterparts. Buyers expect granite counter tops now; they expect highly-upgraded and absolute turnkey for less than they would have paid for mediocrity two years ago.
Statistics can be enlightening, but just we careful that you know what they are really telling you.
May 16th, 2008 at 11:22 am
Kris ~
Great post!
DOM (days on market) stats are also questionable.
Anyone ever stop to realize that those stats only apply IF the home sells?
In the Boise area, fewer than 1 in 10 listings are selling each month, meaning that the other 9 never make into the DOM stat.
Then, there’s the fact that average and median prices are comprised of the MIX of homes that sold.
If a bunch of higher-priced homes sell in a given time period, those numbers move up.
And, if a bunch of lower-priced homes sell in a given time period, it looks like prices tanked.
Numbers are simply an indicator; not the gospel truth.
May 16th, 2008 at 2:07 pm
Kris,
Excellent post. Dare I say, almost “bubble-blog speak” (calm down; no worries; just “almost”; not actual). Same with Phil’s comment.
By the way, when you say “cooperate”, do you mean “pay a commission”? I recall many years ago on one of our FSBOs, we would have various realtors(R) ask if we would “cooperate” with them. (Why wouldn’t we???) Afterwards, this was clarified to mean “would we pay them a commission if they show up with someone who buys the house?” Apparently, it would have been vulgar or the like just to come out and say what they wanted in the first place.
p.s., don’t tell Steve (or Mrs. Smithers), but I like your new picture.
May 16th, 2008 at 4:42 pm
Lies, damn lies, statistics…and then there are real estate statistics as interpreted by journalists.
May 16th, 2008 at 6:59 pm
Kris, real estate statistics are only meaningful if one understands the underlying data. In Princeton DOM was down 57% in April, compared to March. Does it mean houses are selling like pan cakes? No. There was a simple explanation, but usually consumers don’t get those explanations. My recent posts were all about explaining what the data really means. I am not sure how many agents dig that deep. The press usually doesn’t.
May 16th, 2008 at 8:20 pm
Phil - Day on market! Don’t get me started again. The best DOM stat, IMO, is for listings, but we know this one still falls far short of reality because of churning.
Smithers - Missed ya! The pic (thank you for noticing) is cropped from a group shot - the now infamous food drive. I am without make-up, in a dirty T-shirt, and wearing sunglasses on my head. It sort of captured the essence, though. More importantly, don’t mistake me for a bubble baby. Things are showing signs of turning the corner, but I just hate it when the wrong message is sent. Our market is still declining. Period.
KB and Faina - Yes indeed. Manipulating numbers for a particular purpose is not a new phenomenon. Unfortunately, when the stats are misrepresented, my clients get confused. This makes me angry, and you don’t want to make me angry.
May 17th, 2008 at 2:17 am
I’m with Kris on this one. There are some signs of life, but there was also another record-setting month of foreclosures last month. Those houses still have to be listed, drag down their neighbor’s property values, get an obnoxious yellow and black sign in their front yard, go through 3 price reductions, and then finally end up in someone’s lap.
It’s like waiting for the cable guy to show up… these things take time. Just make sure you are around between 9 and 6 for the next year. One thing to keep in mind is that with each price reduction for a sector of houses, there’s going to be a pocket of latent demand that will suddenly spring into action. If the supply grows in a sector faster than the demand, it will put pressure on the sectors near it. At the end of this journey, we all get to buy nicer houses for less money. Isn’t that sweet?
May 19th, 2008 at 4:55 am
You really can make statistics tell you anything. I think just looking at the total # of houses that sold will tell you something. I don’t know about your market but we have years worth of inventory on the market and until most of them sell we wont truly know what the total effect has been. In my market the “problem” houses just are not selling at all. That could be the bottom 1/3 of houses, or the difference between 05 and 07.