Be Careful How You Evaluate Real Estate Data/Statistics: 4 Examples
In today's world, we are often overloaded with statistics, data, etc. Some of it may be relevant and significant, while others may be exaggerated, misleading or useless! We often hear or read discussions about mortgage interest rates, so-called housing starts, the number of mortgage applications, the number of houses on the market, etc. Often the discussion centers on the apparent need to label the real estate market as either a buyer's market or a seller's market! While these can sometimes be valuable indicators and information, as with most data, the skill lies in how well you can interpret them, understand them, know what the numbers really mean and how to use them. Let's look at 4 examples of how stats relate to real estate etc.
1. Average or Median Price: The first thing to understand is the difference between average and median price. The average means that all the homes sold in a specific target area are added together and divided by the number of sales. The median, on the other hand, lists all sales prices, and the one in the 50th percentile is the median price. Simply put, we assume 10 sold homes are inspected and 2 are sold for $500,000; 2 for $600,000; 1 for $750,000; 2 for $900,000; 2 for $1 million; and one for $1.5 million. In this sample, the mean price is $757,000 and the median price is $750,000. But why this information is important is because if the sample isn't large enough, it wouldn't matter which specific homes sold, whether there was more strength at the higher or lower end of the market, etc. When discussing prices, it's important to put it into perspective and see the number of units compared in both time periods.
2. Start of housing: Refers to the number of new buildings in the area, but it does not make sense to also consider how many vacant or available lots/properties can be built on. Always put all statistics into some perspective!
3. Mortgage applications: Are these mostly new mortgages or refinancing? Are they classic mortgages? Could it also be important to look at the duration of mortgages? Shouldn't we also look at the criteria used and how many/what percentage are approved?
4. Homes on the market: Is it generally considered a buyer's market when there are significantly more homes on the market than buyers, and a seller's market when the circumstances are reversed? View inventory of homes and locations for sale. How long do they seem to stay on the market?
As with most things related to statistics, it is important to know and evaluate what things mean rather than making false assumptions and/or speculating. Watch out for stats as they can prove to be your friend or foe!
Richard has owned businesses, been a COO, CEO, Director of Development, consultant, professionally managed events, consulted thousands of people, conducted personal development seminars for 4 decades and a licensed RE Salesperson for over a decade.