When Average Just Isn’t Good Enough

Last week, real estate investor Don Campbell had an interview with Sun News. You can watch it here.

In the video he states:

“Well the number one thing they should do no matter where they’re buying is ignore average prices, because, that is not a reason to buy.”

The industry and MSM have always enjoyed referencing the average price.  Average price increases was the sign of a healthy and profitable market.  But there has been a noticeable shift.  We’ve now reached the point where many in bubbly markets such as Vancouver are sitting up and taking notice and thinking:  maybe high housing prices aren’t necessarily a good thing.

CREA has  started putting caveats in the monthly reports:  ”National average price still being skewed upward by the value of sales in expensive Vancouver neighbourhoods.”  Or they have even recalculated what the national average price would be excluding the Vancouver and Toronto markets so that the increases are less substantial.  (ie. ”If Vancouver sales are excluded from the calculation, the year-over-year change in the national average price amounts to 5.6 per cent; excluding Toronto and Vancouver shrinks the increase to 3.7 per cent.”)

Odd that they’re actually trying to downplay any price increases, isn’t it?

CREA’s Chief Economist had this to say:  “Failure to recognize changes in the mix of sales activity can lead to misinterpretation of average price fluctuations. It can also give rise to faulty predictions of broadly based home price deflation by way of price correction.”

That’s certainly true.  I’ve always advocated looking at the median over the average which is easily skewed.  It’s just the timing of trying to move away from average prices that is questionable.

Back to Mr. Campbell who advises us to ignore average prices, and has a research paper coming out soon entitled, ”The Danger To Canada’s Real Estate Market from Bad Science – Average Price vs Real Market Health”:

Average house prices in Calgary could flirt with record levels within the next two years due to a commodity boom in the province, says a real estate industry analyst.  Don Campbell, president of the Real Estate Investment Network, said house prices could increase five to seven per cent this year and another five to seven per cent in 2012. (Calgary Herald)

Campbell said he expects Edmonton home prices generally to rise nine per cent in 2008 and 12 per cent in 2009  (Edmonton Journal)

It’s the selective use of certain statistics that I find annoying.    Either use them or don’t.

In the same video interview linked at the outset, Mr. Campbell goes on to say:

“Edmonton and Calgary right now are just on the cusp of the next “frenzy” as I like to call it. Prices have gone down 2-3% over the last 12 months in Edmonton and Calgary.”

You get the point.

“And right now, I don’t know if you’re seeing it here but the advertisements across Canada for please come and work in Alberta are happening. That means population growth, which means vacancies will go down, which means demand for purchases will start to take off.

18 months from now Edmonton and Calgary markets are going to be in a frenzy again.”

Mark your calendars but be sure to ignore the average price.

Related post:  Buy Now – Frenzied Seller’s Market Coming (April 2011)

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CREA’s Data Distribution Facility

CREA is in the final stages of developing a new Data Distribution Facility (DDF) that will allow us to easily distribute MLS® listing content to multiple websites and hopefully enhance the user experience for those buying or selling their home.

Contrary to the tone and what was implied in a recent article in the Globe & Mail , here is some additional info on the changes:

-The CREA DDF will not be used to give away members’ data.  The proposed DDF would be a member service that would enable brokers and REALTORS® to more easily disseminate MLS® listing content,which they are already doing today.  Only the listing content that members instruct CREA to send out will be distributed through the DDF.

Q:  Will the information sent to third parties involve sold information?
A:  No.  Participants in the CREA DDF will be able to choose how much information they want to send to third parties using data templates.  One data template will likely consist of all the fields that are currently displayed on REALTOR.ca.  Another data template will be a ‘shallow listing’, which will consist of only a few fields and a link to additional information.  That link could be a link to the brokerage website, REALTOR® website, or to REALTOR.ca.  Sold information will not be a field included in any of the data templates.

Q: Will CREA send listing content to FSBO websites through the Third Party Module?
A: No.  FSBO websites that focus on providing real estate services would not meet all the criteria required to participate in the Third Party Module.

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Zillow

It’s interesting to note that  ”when Zillow burst onto the U.S. real estate scene in 2004, it was hyped as a disruptive force that would render real estate agents redundant as consumers used the site’s rich data to find and sell their own homes. But it never had the effect some feared – commissions in the United States are about the same as when the site launched, and Zillow has changed its business model over the years to include real estate agents, who now pay a monthly subscription charge for access and also pay to have their listings featured more prominently on the site.”