Statistically Speaking
Posted 04-23-2016 at 09:36 PM by AZJoeD
One of the most useful and often misused tools are real estate statistics related to sales and market data. While statistics, when properly gathered, are hard to refute they can easily be misinterpreted. Many times a person that is not familiar with a local market may draw incorrect conclusions about the health of a local real estate market. The results are often Buyers or Sellers with unrealistic expectations.
Two areas that I often see being misinterpreted are month to month sales data and using zip codes instead of neighborhoods.
In the case of month to month sales data, one could easily misinterpret the health of the market simply by comparing one month to the next. Depending on what part of the country you are located there could be huge changes month to month. But the changes could easily be explained by researching year over year data to see if there is a seasonal trend. One example might be the case of comparing the number of closings that occur in winter months to summer months. In many areas of the country closings in January will logically be lower than in May because many buyers (and sellers) are reluctant to execute a move in the winter. Since real estate closing typically take 30-45 days that means any contracts signed in early spring may not close until late spring or summer. Not necessarily indicating a bad market, just a seasonal trend.
Another problem I often see are using zip codes as the boundaries for market data without regard for unique neighborhoods within the zip. Any agent that knows his/her local market can tell you that within a zip code you can have neighborhoods that are very desirable with very healthy sales and other neighborhoods where homes are languishing. One such example could be the case of a zip code that contains both historic neighborhoods and homes that have no historic significance. The sales of homes in historic districts will almost always trend at a different rate than the other homes in the area. In some cases the two properties could be literally across the street from each other with different market conditions.
So essentially, when attempting an apples to apples comparison you must be aware that there are different types of apples. Using a Granny Smith apple when the recipe calls for Gala apples or selecting a Golden Delicious instead of a Macintosh will yield a different and perhaps undesirable outcome.
So to summarize, I can say that in my opinion the statement that “All real estate is local” is right on the money. Both Buyers and Sellers can benefit from the expertise of a local agent that does indeed know the local market.
Use your statistics, but before you do understand what they are telling you and apply them correctly to avoid costly mistakes.
Two areas that I often see being misinterpreted are month to month sales data and using zip codes instead of neighborhoods.
In the case of month to month sales data, one could easily misinterpret the health of the market simply by comparing one month to the next. Depending on what part of the country you are located there could be huge changes month to month. But the changes could easily be explained by researching year over year data to see if there is a seasonal trend. One example might be the case of comparing the number of closings that occur in winter months to summer months. In many areas of the country closings in January will logically be lower than in May because many buyers (and sellers) are reluctant to execute a move in the winter. Since real estate closing typically take 30-45 days that means any contracts signed in early spring may not close until late spring or summer. Not necessarily indicating a bad market, just a seasonal trend.
Another problem I often see are using zip codes as the boundaries for market data without regard for unique neighborhoods within the zip. Any agent that knows his/her local market can tell you that within a zip code you can have neighborhoods that are very desirable with very healthy sales and other neighborhoods where homes are languishing. One such example could be the case of a zip code that contains both historic neighborhoods and homes that have no historic significance. The sales of homes in historic districts will almost always trend at a different rate than the other homes in the area. In some cases the two properties could be literally across the street from each other with different market conditions.
So essentially, when attempting an apples to apples comparison you must be aware that there are different types of apples. Using a Granny Smith apple when the recipe calls for Gala apples or selecting a Golden Delicious instead of a Macintosh will yield a different and perhaps undesirable outcome.
So to summarize, I can say that in my opinion the statement that “All real estate is local” is right on the money. Both Buyers and Sellers can benefit from the expertise of a local agent that does indeed know the local market.
Use your statistics, but before you do understand what they are telling you and apply them correctly to avoid costly mistakes.
Total Comments 0
