The Problem with Reporting Home Price Averages

September 29, 2017

You can spin numbers to say anything you want, but the math never lies.

 

Well, the fall market is in full swing and the verdict is in - It's business as usual!

 

There were a lot of folks wondering how this fall would play out after what was a very slow summer, and more so wondering if the summer was the start of a prolonged slowdown in the TO housing market overall, or if it was just a typical lazy summer. Well, I'll tell you this: available condo inventory is definitely up from August but buyers have come out of their summer vacations firing and bidding wars, multiple offers, and bully offers are back, just like they are every fall. So there is a collective sigh of relief that nothing fundamentally has changed with respect to market dynamics. It's still a seller's market as long as you price correctly.

 

And prices overall?

 

It's a little too early to tell but from my own analysis, there's no question condo prices are up over August and probably by a fair margin. If you're still waiting on the sidelines for a correction in the condo market, you're not going to see it this year. I've said it.

 

Which brings me to the point of this post - what do people mean when they say "prices are up?" or "prices are down?"

 

And by people, I'm almost always referring to the media because anytime someone comes up to me and says "so I hear the market is down", it's always because of what they've seen on CP24 or CTV or some other media outlet that is looking for eyeballs rather than factual reporting.

 

Well, the media will always, always spin the numbers to create a dramatic headline.

 

For example (and I'm paraphrasing here):

"Toronto prices crash 20%" or "Sales crater 35% signaling an end to the Toronto housing market".

 

And my favourite: "The bubble has finally burst".

 

So where do they get their numbers? First off, the numbers themselves are not the issue. You can't make up numbers. But the context in which those numbers are used is what I have a major issue with.

 

I've seen a few blog posts from agents trying to explain this phenomenon with generalizations like "there were more luxury sales in the Spring than in the summer" but I wanted to break it down to the simplest form with an example. Then you can be the judge if the media is right or wrong in how they portray them.

 

Let's take a fictitious scenario with made up numbers and assume these are the only condo sales that took place in all of Toronto:

 

April 2017:
Sale #1 - 1000 sq ft condo sells for $800,000
Sale #2 - 500 sq ft condo sells for $500,000
Sale #3 - 700 sq ft condo sells for $650,000
Sale #4 - 1400 sq ft condo sells for $1,600,000
AVERAGE SALE PRICE in April: $887,500

 

Then May 2017:
Sale #1 - 1000 sq ft condo sells for $790,000
Sale #2 - 500 sq ft condo sells for $510,000
Sale #3 - 700 sq ft condo sells for $640,000
AVERAGE SALE PRICE in May: $646,666

 

And finally, June 2017:
Sale #1 - 700 sq ft condo sells for $645,000
AVERAGE SALE PRICE in June: $645,000

 

Now, would you say prices were up or down between April and May? What about between May and June? And how would you characterize the "market" change between April and June?

 

The answer - you can probably spin this however you want your headline to read.

 

And here's where I have a major issue with the reporting of averages. The average sale price between April and May in my example dropped a staggering 27% (from $887,500 to $646,666)! But show me a single unit in my imaginary city that you could actually buy in May for 27% less than in April. In fact, the price of 500 sq ft condos actually increased by 2%.

 

So does this mean the market is up or down? That depends what you want your headline to say.

 

Again, let's look at the difference between May and June. The average sale price was down slightly (from $646,666 to $645,000) while one could argue that prices are actually up (the sale price of 700 sq ft condos was actually up). How do you think the media would report this?

 

And now, let's look at actual sales volumes, not prices. Between April and May, actual sales (in my example) were down by 25% (from 4 to 3) and between May and June sales were down by 66% (from 3 to 1). No doubt this would make for a juicy headline as well. But prices? That 700 sq ft condo still costs about what it did back in April.

 

I think you get where I'm going with this and that while the numbers themselves don't lie, the way they are presented can make a huge impact on how the market as a whole is perceived by the general public.

 

The lesson here - ignore the headlines, look at the numbers, and really think about what you are being shown. Of course, I have yet to see an article or CBC news report that actually provides all the fact and numbers someone would need to make an informed decision, so I guess that's easier said than done.

 

If you have a comment, feel free to leave it below. And remember, if you haven't already, please "like" my Facebook page and check back regularly!

 

Your Toronto condo lover,
Adil Dharssi
Sales Representative
iPro Realty Ltd, Brokerage
Direct: 647-223-1679 (call/text)
Email: Adil@AdilKnowsCondos.com

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