A blog cannot deal with all aspects of a subject and is not intended to replace professional advice. It's purpose is to highlight information and identify areas of possible interest. Anyone wishing to discuss this blog or to make any comments or suggestions about this blog is invited to do so by either posting comments or emailing me directly.
January 31, 2011
Beware the "Statistics"
I just received our community newsletter this week – in the mail. As always, there's a full-page advertisement from one of the real estate Associates that occasionally has listings in the neighbourhood. I was embarassed for this agent.
I always wonder why someone spends about a thousand dollars advertising 8 homes that are probably no longer even on the market since the print deadline was 7 weeks ago. But, I digress.
He's my point: The statistics themselves need interpretation and should not be taken as gospel. It's said in the advertisement that the average days on the market for a home in this community for all of 2010 was 39. And the average selling price of a bungalows was $529,257. Okay that's pretty cool. Homes are selling fast and they're being sold at more money than even at the peak of real estate market in Calgary (2007). Right? Not so fast!
Let's look at those numbers.
Firstly, average "days on the market." When the typical buyer, seller (or consumer) wants to know how many days a typical home has been "on the market," they're looking for the "total" number, not just the average of the number days in the very last listings that actually sold. So a better number that really "should be" quoted is closer to 90 - maybe more. There were a lot of these homes that had their initial listings expire and were subsequently relisted for sale. There are others that expired and didn't get relisted. Those additional numbers aren't in that number "39" in the advertisement (nor is there even a "fine print" disclaimer). The problem is, our real estate board doesn't calculate or publish numbers. It's not really this agent's fault for quoting the number as 39. That is the statistic that's readily available - it's just not very meaningful without context. (Just to show you how the numbers are distorted. A sampling for the very first 10 random homes in the data search had one home shown as 166 "days on market" when its total was actually 301. Another was 144 days versus 56. A third was 121 days versus 74.)
Okay, now for those bungalows...
In 2006 there were 9 bungalows that sold for an average of $423,877 (their average size was 1436 square feet). In 2009 there were 10 bungalows sold for an average of $465,598 (their size was 1496 square feet). And the average size of those 7 bungalows sold in 2010 was 1617 square feet... see where I'm going with this?
So for each of the years we sold about the same number of bungalows, but between 2006 and 2010 the selling prices rose by 25%. From the same statistics we could say that the average bungalow was 13% larger. So did they grow? (By the way this community was built in the 1980's and there hasn't been a new home here since about 1993.) From 2009 to 2010, the average bungalow sold for 14% more and the size of the bungalows also got larger by 8%. Sure they did! You really have to come to my neighbourhood: You can actually see the bungalows getting bigger every day. So, did the "average" bungalow grow in price by 8% in the year? Did they really grow in value by 25% since 2006? The numbers only tell us that the homes that did sell were substantially larger in size, and yes they sold for more money.
If we look at the Calgary market as a whole, you'll see the same thing. Larger homes have been selling in the last couple of years versus the recent norm. Will this be the trend in 2011? Not likely -more and more people are looking at down-sizing (or right-sizing) now that the period of rapid capital appreciation in the real estate market is most likely over for another decade.
So there are two things to get out of this,
1. Just because facts and figures can be sliced and diced, and then spewed out, it doesn't mean they should be. The fewer the number in any sample, the higher the error factor if you are trying to represent the market as a whole.
2. As we have been saying for the several years, facts and figures about the real estate market are just that - facts and figures. Are they correct? Yes. Are they useful? Depends. You can get all kinds of real estate statistics - especially off of the Internet. Without context, they are seldom useful.
Feel free to ask almost any experienced real estate industry professional you like for their analysis and interpretation of that data. I'm sure you'll get a better understanding of the real market in Calgary.
Also, beware the "Free market analysis" (and many "complementary" market analyses) are worth the paper the're written on. Maybe even less. Unfortunately these are lead capture programs to get to potential sellers to call them to provide them an idea of fair market value. Be prepared to hear a marketing spiel for at least an hour. (So, are they really free?) My ideal client will select and hire their real estate agent first and then, together, based on today's market value determine an appropriate list (asking) price for the home.
So, why would this fellow advertise on the back page of the neighbourhood newsletter? Do you think he's the area expert? Give me a call, or send me an email, and we can discuss it.
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