“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 real estate statistics in the media:
Canadian Housing Starts Fall
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.
Home sales drop 27%
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 also generally need to be 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.
Average House Prices Expected to drop by 15%
This is the most misunderstood of the media reports that come out because averages are a terrible metric to measure house prices.
This is because the type of home that is sold in a given month strongly influences the outcome. For instance, if a lot of luxury homes are sold one month, then the average price of homes will go up, even if the typical home price doesn’t change. This is exactly what has already happened in Vancouver, where the average price has dropped by 13.3% year over year, but the typical home price is actually higher (see graph below).
% change in home prices year-over-year
(June 2011 to June 2012)
City Average price MLS Home Price Index Teranet-National Bank HPI (May data)
Vancouver -13.3% +1.7% +4.4%
Calgary +2.5% +5.6% +3.5%
Toronto +7.3% +7.9% +9.9%
Montreal +3.7% +2.7% +4.5%
Remember to always read real estate statistics with an eye to these issues and you’ll become a more accurate analyst of the market.
For a more complete analysis of these statistics, please feel free to contact me at the email address or phone number found at the right sidebar of this website.