BC Sunshine Coast real estate by Menno at Royal lePage Real estate on the BC Sunshine Coast

Can anybody give a short answer to the question “what is the real estate market doing”. The truth is that there isn’t ONE simple answer to that question. It’s complicated, there are many simultaneous markets and developments.

A screaming headline that the market has gone up 5% (or down, for that matter) will get people's attention. For ratings, you have to express yourself in clear words.

It’s mighty easy to scream that the market is going up or down. It’s also not very difficult to point to some statistical information to “prove” what one just said. There’s usually a statistic available that can show what you want shown. This is not to say that statistical information is useless. It’s to say that careful interpretation of statistics is the only way to make any sense of a large number of developments taking place in markets that are somewhat (but not entirely) connected.

Therefore: Is the real estate market going to go up? Or is it going to go down? You might be surprised to hear the best possible answer on those questions here – other than of course a simple yet truthful “I don’t really know”. It’s not as simple as black or white.

Unfortunately, it’s of no interest to the news media to report that there are many developments going on at the same time. A news broadcast needs to be sensational as well as very clear. “The market tanks” or “The market is exploding” is much juicier than “we can report on a multitude of somewhat related market developments”. For ratings, a complicated analysis is unwelcome. In reality, it’s no news that real estate prices go up as well as down – but mostly up. In the long run, an investment in real estate should always pay off.

Too complicated: the market in this area did this, the market in that area did that, in this price range something else and in this property group something else again.

WHY MUST IT BE SO COMPLICATED?

Homes on the Sunshine Coast cost way more today than they did 10 years ago. Then again, so do milk, electricity, car insurance and most everything else. Our income has gone up too or so we hope. What’s that got to do with predictions about the real estate market? Some say we should expect further price increases, others say there will be decreases. Who should we believe? While looking at real estate market statistics (covering periods behind us), some say the market is this way, others say the market is that way. Are they both right? Or which one should you believe? There are even many different ways of measuring current real estate values – which one shall we believe to be true? In statistics, just about anything can be “proven” with certain information in one’s hand. Careful interpretation of real estate market statistics is more than a hard science; it requires a feel for the events.

Is it starting to drive you nuts? All those statistical reports on how the market has been doing are different. One day, an article comes out stating that sales are down. The next day one hears that the average prices have gone up. Then there’s an article about median prices and what those have done. Often, one can “prove” that prices have gone up AND down at the same time, all depending on what parameters one is using.

Although there are some comparisons with the stock market, you cannot treat real estate as a get rich quick vehicle. Real estate is a long term investment.

SAY IT AGAIN: IT MUST BE LONG-TERM

Who ever knew that the science of statistics can be so vague? For instance, the average price can go up while the median price goes down. Or the number of sales can be going down while the prices are going up. It all may not make a whole lot of sense at first glance, but it’s all possible; even simultaneously.

A good interpretation of the difference between median, benchmark and average sales prices can be found here: http://www.menno.ca/?p=1792 .

One can interpret information in a good variety of different ways, depending on the spin one needs to give on the topic. A very simple example would be seen in a market that sees prices go up and then down (which is quite common, in all reality). If, at one point, one compares back to when the prices were higher, one can state that the prices have come down. The observation would be entirely true, statistically speaking. Conversely, if at the same point, one were to compare to a point when the prices were lower, one could truthfully state that the prices have gone up.

If that doesn’t create enough confusion, one could look at certain groups of properties … just strata properties in a certain area, for instance. One can do any kind of comparison, really, just to make the desired point. Of course, it’s not only real estate where this kind of statistics-aided point-making is practiced. You can do it with all sorts of things: tourism numbers, medical procedures, crime rates, any kind of sales information – anything to do with numbers really.

Nobody benefits from spot-check statistics. You have to look at a longer period of time and include as many samples as possible in your calculations.

MANGLED STATISTICAL INFORMATION

The interpretation of statistical data is somewhat of a science – but it’s definitely not a “hard” science. There’s always room for interpretation and there’s always some form of variance to be taken into consideration.

How to compare a peach with a peach, so to speak, is nearly impossible in the daily life of real estate. You would need to see exactly the same property sell twice to see where the market is going. Right there, the problem begins. Virtually no property remains unchanged over time. People renovate, fix the yard, pave the driveway or else, they might do the opposite: wear down the property extraordinarily (a situation we occasionally encounter in so-called grow-up houses). Therefore, when you see the same property sell twice after a number of years, it’s a vague indication of value direction but not fool-proof hard evidence. There are many factors at play.

Even then, if we were to assume that the property is EXACTLY the same after a few years (which is basically not a possibility), then buyers’ and sellers’ motivation comes into play. Did one of the two really need to sell or buy? Was it a foreclosure situation, was there a death in the family? Serious illness? Unemployment? All these things have the effect of skewing the true picture.

It's not useful to calculate an average when there are insufficient samples. The odds would be that your statistics will be severely off the mark.

THE AVERAGE OF ONE AND TEN IS, ER FIVE … AND A HALF

The more “samples” are in your mix, the greater the likelihood of statistical accuracy. It means you have to look at a large number of transactions over a period of time to say anything that’s even half-smart. The real estate board puts out monthly fact sheets. These help to give us an informed indication of where the market is going. It still requires careful analysis to come to justifiable conclusions. Averages, as posted in some statistics, display a certain amount. A median price does that too, but arrives at the figure differently. Another approach is the benchmark sale. In any of these methods, the end number will vary. It also makes a difference how wide one takes the sample groups.

In all, we can be pretty sure that houses are now worth more, around here, than 10 years ago. We can also be almost certain that long-term real estate values will see appreciation. It might all be a bit like the stock market. It goes up some of the time, it goes down from time to time; however in the long run there should be good appreciation.

There are many other blog articles on these pages that may interest you. Below are some linked blog articles that connect with the above.

MORE reading on real estate markets and marketing information in the following blog articles:

The most recent market stats: http://www.mennorealty.ca/Blog.php/dec-2012

Interest rates and property prices: http://www.mennorealty.ca/Blog.php/buy-more-lowrates

A bit more about the appraisal business: http://www.menno.ca/?p=19423

Selling something valuable: http://www.mennorealty.ca/Blog.php/considerations-negotiations

Tell me what it really means: an Open House? http://www.menno.ca/?p=19478

Making an offer – at what price: http://www.menno.ca/?p=19465

Going on right now: low mortgage rates: http://www.menno.ca/?p=19448

Are there good and bad times? http://www.mennorealty.ca/Blog.php/coast-best-time