Fuzzy math and market stats…

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Last week I released several market reports.  Every time I do this, I agonize over the numbers and worry that buyers and sellers will take these numbers the wrong way, or perhaps too literally.

Numbers don’t lie, but they can be loaded with caveats…

There are times when I calculate the median sales and know that the results are just “wrong”. I don’t mean “wrong” in the sense that the calculations are incorrect.  I mean that even though numbers don’t lie, they can be distorted by random quirks.

I used to be a biologist and actually spent many years in the lab. Outliers in biological systems are common and they can skew the data and make a general mess of things.  And so it is with real estate. When you drill down into towns and villages, the total numbers go down and that means random variances in the housing stock can give distort the picture, kind of like a fun house mirror.

So then I have to ask myself, am I wrong or is it something about the numbers?  Did sales prices REALLY go up over 20% in town “A” over a mere  year? Or did condo sales prices really tank in town “B”?

You can’t always paint by number…

Very often, on close inspection, there is a logical explanation for the aberrations.  It seems to happen a great deal in the condo and co-op markets.  The volume in these markets is generally low so they are really prone to random gyrations. This wrecks havoc with my clear cut vision of where the market actually is.

When I was doing one of my most  recent reports, the numbers indicated  that  home values in one town had skyrocketed over 20% in one year. YIKES!  Bubble land? Well, not so much this time around.  An unusually large number of super-high end homes had sold, shifting the median and making the market look positively manic.

Adventures in statistics – How the data can be misinterpreted…

It was 2008 and on the ground the housing market was showing signs of strain.  I was starting to see real signs of price decreases in my market. When I would see a sold house, I would think “that would have sold for at least $25k more last year…”

So my eyes were bulging out of their sockets when I ran the numbers and found price increases in most sectors.  How on earth could I make sense of this myself, let alone to my clients?

After careful inspection, I realized that the price decreases were real enough.  Median prices had risen because buyers had become increasingly picky and only the cream was selling. This was partly because getting a home equity line of credit to finance renovations was becoming a thing of the past. Since there was no money to renovate, buyers were demanding, and getting, a turnkey home for less than they could have in the past.  But the net effect was the median that median sales prices were UP not down.

Ironically, the reverse happened just as prices started rising. On paper, it looked as though prices were still in the tanker, but in an apples to apples comparison, it was clear that prices going back up.  This time it was investors and people sensing that the could get a real steal if they bought a fixer that were taking advantage of a glutted market of fixer-uppers.

The art and science…

The trouble is that each town does represent its own unique market, with its own price points.  Sometimes the numbers show me something I missed in the local market.  More often I find that it is some sort of normal variance is skewing the numbers.

The bottom line here is that data is pointless if it can’t be interpreted.  You can have piles and piles of numbers and data, but it is useless unless you can make sense out of it. That takes boots on the ground.  Its also why algorithms like Zillow are often so far off the mark.

© 2016 – Ruthmarie G. Hicks – https://thewestchesterview.com – All rights reserved.

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