Welcome to Summer!
Our thoughts are with those who have been affected by the Albertan floods. That said, we’re confident that our Albertan brothers and sisters will be able to recover from this disaster.
In addition to reading about the Alberta floods in the paper, the news often covers a wide variety of real estate stories. The media, in an attempt to feed the public’s insatiable appetite for real estate news, often publishes interesting pieces of real estate information that help sell papers. Due to constant heavy dose of statistical information, it’s important to understand how the data is collected and how to interpret these facts.
Below are the 3 most commonly misunderstood real estate statistics in the media:
1) Pace of Canadian Housing Starts Up
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.
2) Home Sales Drop!
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.
3) Average House Prices Rise 6.5%!
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 risen 5.4% year over year, but the typical home price has fallen (see graph below).
|% change in home prices year-over-year
|(June 2012 to June 2013)
|MLS Home Price Index
|Teranet-National Bank HPI
|Remember to always read real estate statistics with an eye to these issues and you’ll become a more accurate analyst of the market.