We look at a lot of charts and market statistics around here - 3 times per week on most weeks, and for the most part it’s pretty easy to see whatever it is the chart is trying to tell us (prices have increased, sales volume has been brisk, one city is more expensive than another city, etc.)
But not every statistic is as valuable, or as honest, as what it’s portrayed to be. This is especially true with headline stats in the media and the big news websites. Today let’s take a minute and talk about how statistics can be used, and abused.
Here are 4 ways statistics can be misleading:
1.) the Percentage vs the Number
When you hear a report on the local news about a bacteria infection that’s very dangerous, and they tell you that deaths from this bacteria are up 67% across the county this year… Holy crap - that sounds scary as hell. What are we going to do to stay safe?!
What they fail to mention in the report is that last year 3 people died, and this year 5 people have died. Well, that isn’t quite as bad. 5 people, out of the 400,000,000 that live in our country? Now I like my chances. I have better odds of winning the lottery than catching that bacteria.
Don’t fall for a percentage without knowing the real story, as percentages can be manipulated.
2.) Longer Trends paint a more accurate picture
If I show you the median price of this month compared to this month last year, we may or may not get an accurate representation of the trend. Either month could have been higher, or lower, than normal, which would cause the numbers to be out of balance compared to what is really going on in the marketplace.
This is why I like to show a particular month over several years’ time, or the median price for a quarter, or year-to-date. These longer time periods give you a much better representation of the actual market’s trends.
Beware a statistic or a chart without many reference points.
3.) Do the Statistics match their use?
I had a telemarketer call me yesterday. He told me that NAR is reporting sales volume is down, and asked if I needed his help with marketing?
I asked him if he was looking at national numbers (NAR), or Phoenix-specific numbers, as we haven’t seen a downturn in volume yet. Unless he’s talking about volume this month compared with volume from the summer - because the real estate business is seasonal and volume always goes up in the spring/summer and then down again in the fall/winter.
He couldn’t wait to hang up on me. :-)
Be careful about making decisions based on statistics that don’t pertain to your situation.
4.) Using past Trends/Statistics to predict the future
The real estate market, like the economy as a whole, tends to get along just fine, month after month, until it doesn’t. Sometimes you can see a market change coming; sometimes you can’t.
Stocks can move higher in a bull market run for several years, before suddenly dropping. Then, out of nowhere, we start hearing about a recession on every channel and website.
The same thing can happen with real estate: prices move higher for several years in a row, then over a couple months’ time the Days on Market number starts rising, before sellers have to start reducing their asking prices in order to attract an offer.
We don’t always know when or why, or how long, or how severe any correction will be. But we do know prices don’t go up in a strait line indefinitely.
Be careful making predictions about the future based on what the past statistics and trends have shown.
I think charts and statistics are incredibly valuable information, but they can also be manipulated if you don’t know what to look for.
Hopefully my Simple MLS Charts give you the right amount of stats, trends, context, and information to be both honest and useful. That’s the goal at least…
- Chris Butterworth
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* All chart data represents single-family detached homes only. Information is believed accurate but not guaranteed.