If a regional market increases its rate of sales by 100%, that's a pretty good sign, isn’t it? That means twice as many homes sold compared to the previous time period. The truth is, this can be great news or mean almost nothing. Two sales are 100% more than one, but it doesn't tell us much about the market, good or bad, because the sample size is too small. Small sample size issues are commonplace when trying to examine small towns or rural areas.
For the record, the example we provided isn't an exaggeration, but references the change in closed sales from the Market Watch Report for the 1st Qtr 2012 for zip code 08302 in Salem County, NJ. If TREND didn't list the total sales, you would have no idea the % increase meant such small actual numbers.
National vs. Regional Reports
is one of the best known providers of real estate statistics in the country, and its 10 and 20 city index is frequently quoted by the media as a reliable indication of housing prices. However, the index does not include the Philadelphia area.
In fact, 5 of the 10 metro areas in the 10 city index are in California or Nevada, 2 of the hardest hit states during the housing bust.
Furthermore, even in NYC, Shiller excludes condos and co-ops, which comprise about 99% of sales in Manhattan. The NYC index includes Putnam County, 2 hours North of NYC, Bergen County, NJ, and Long Island, but excludes most of Manhattan.
Because of their methods and use of public records as the primary data source, the reports are indicative of actual market conditions 4-6 months ago. Whether this is meaningful on a national scale is one thing, but Case Schiller Indexes certainly don’t reflect anything about TREND’s market.
Conflicting Criteria and Calculations
Different statistics providers often use different criteria when creating their products and reports. For example, to determine the amount of Distressed Sales, some providers include short sales and bank-owned properties while others include only properties in any stage of the foreclosure process.
Another statistic, MSI (Months Supply of Inventory), may use much different absorption rates to find an answer. NAR uses the current month’s sales (seasonally adjusted), and others the average sales for Last Twelve Months or current month’s Pending sales.
Regardless of methodology, these statistics can show you market trends over time, but be sure to reference one provider if you want have a meaningful market resource.
New Construction Market Times
It is not uncommon for new home builders to enter representative listings for homes that have not yet been built. Because these listings represent a model of a home available in a development, and not a physical structure, they may remain on the market in excess of 1,000 days. Average Days on Market (DOM) and Property Marketing Period (PMP) statistics could include new construction and this can skew the results to appear much higher than they should be. The median DOM, on the other hand, is minimally affected by new construction and a better measurement to use when referencing DOM or PMP data.
Month-to-Month Comparisons and Seasonality
When watching the news in December, it is common to see reports on how real estate sales have slowed since September or October. To the real estate professional, this is business as usual. You understand the industry is seasonal even when the market is hot. To the consumer thinking of selling their home, though, the world is collapsing around them.
Both prices and sales are heavily influenced by normal seasonality. If your goal is to determine market trends, data should be compared year-over-year or adjusted for normal seasonal effects. Since 2001, June, July, and August have had the 3 highest average prices each year, and, except for the tax credit years of 2009 and 2010, have had the 3 highest monthly sales. Like the weather, prices and sales are mild in the spring, hot in the summer, and cold in the winter.
Statistics have their benefits and their challenges, and in today’s marketplace filled with consumers looking for answers, they are unavoidable. As a real estate professional, you need to understand the pitfalls listed above. Then you can provide excellent customer service by guiding your consumers through a sea of misinformation.
Also, be sure to use TREND’s statistical reports located on the Info Center, which offer consistent market information tailored specifically for your market.
Kurt Miller • Account Executive Manager
Kurt joined TREND in 2006 as an Account Executive. Kurt is currently the Account Executive Manager. He contributes to the TREND community by writing news stories, as well as providing his expertise through personal office visits and training.