August 2012 Market Update

August 2012

"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

(http://www.cbj.ca/business_news/canadian_business_news/canadian_housing_starts_fall_to_moderate_pace.html)

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%

((http://www.cbc.ca/news/canada/british-columbia/story/2012/07/04/bc-vancouver-real-estate.html))

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%

((http://www.timescolonist.com/business/Vancouver+home+prices+expected+drop/6768117/story.html))

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).

For a more complete analysis of these statistics, please feel free to contact me

at the email address or phone number above