The First Accurate Description of Real Estate Market Trends I’ve Ever Seen
Or in writing at least. My impression is that most of us Realtors are aware of this phenomenon but I so rarely and clearly explained to the broader public.
People ask me all the time in casual conversation “How’s the market?” and while the question is simple, the more time I spend as a Realtor, the harder this question becomes to answer. You see, it’s because a meaningful and useful answer to even this simple question is very long. First I would have to correct some oversimplified notions that most people have like “up is good, down is bad”, correct the nonsense that the media has put in their heads, find out more about who they are, what their situation and goals are never mind get to answering answer the question itself in a way that is succinct.
Don’t get me wrong. I’ll talk about real estate all day to anyone who will listen, it’s just the topic is such that most people don’t really want to hear that much info when I met them at a party or some other social situation. My clients get the long answers, but they’re already converted and I just have to guide them to the specific property or sale that is the best possible one for them. So, it seems that things like this blog are the best way for me to get the message out to a larger audience.
I give a slightly different answer to this question each time. Not because anything I’m saying is untrue, but because the ways in which one can or could benefit from the market at any given time are going to vary from one person to the next, from one property to the next, from one month to the next and so on. Being aware of all of this and navigating it is my job and it’s full time one. The other reason I give a variety of answers is because the full answer is so long that I summarize the key parts of it bit by bit in hopes that if that person talks to me enough they will start to get the big picture.
The main thing people look at to see how and what the real estate market is doing is looking at average sales prices for a given area. This is the bit that the news really screws up time and time again. They don’t usually know how to interpret it plus they are in the business of making a story sound exciting so they all too often talk about ups and downs without any concept or explanation of what any of it means. Only the occaisional pundit (like Ozzie Jurock) sets the story straight.
And here is what I found in my email a few minutes ago from the Canadian Real Estate Association that inspired the title above. In my world, this is nothing short of a breath of fresh air. What I wrote above is just my emphasizing why I think the general public should read this and remember this simple concept:
The Funhouse Mirror
The national average home price was down in March from where it stood last year. But home prices are not declining. Confused?
Average prices are affected by changes in the mix of sales, so year-over-year price comparisons can be like looking in a funhouse mirror: distorted.
To illustrate: line up a class of kids by height, calculate the average. Now excuse the ten tallest kids and recalculate the average. The average height has declined, but the kids haven’t gotten any shorter.
A year ago, the national average price was pitched up by surging sales activity in some of Vancouver’s priciest neighbourhoods. With activity there having subsequently returned to earth, the average has declined.
By contrast, the MLS® Home Price Index (HPI) is not affected by changes in the mix of sales. It’s based on a sophisticated model of buyers’ willingness to pay for various features that contribute to a home’s value, and provides a clear picture of home price trends. The MLS® HPI remains up from year-ago levels, so the reality is that home prices are still climbing in the five major markets that it currently covers. That includes Vancouver, where the average price was down from where it stood last year.