What does it all mean?
Ever saw a photo like below summarizing the real estate market and wondered what it actually meant? Everything looks good, right?
September 2017 Monthly Housing Statistics courtesy of HBR
The purpose of this post is to break it down into explaining the WHAT, HOW, and WHY the statistics are used and the limitations of monthly data.
HOW do we get the DATA?
Part of a REALTORS® fee is access to the MLS, short for Multiple Listing Service. Handled by the Honolulu Board of Realtors (HBR), it’s a database where 95+% of all real estate transactions occur. It is an absolute treasure trove of data. While amazing in itself, sifting through it and coming to an informed conclusion creates its own issues. The issue is so tough that Zillow,the self proclaimed “leading real estate information marketplace” with an almost $8 billion market cap, is offering $1 million for a more accurate algorithm. Don’t worry, you have time to enter the contest if you have coding chops.
WHAT DATA do we get?
The data you see above and below, broken down by single family homes, condos, neighborhoods; graphs on graphs on graphs. While only REALTORS® have full access to it, it is my belief that our role is to help our clients make an informed decision using it and not hiding it. This idea is one of the reasons there’s been so many lawsuits regarding it. The other reason is that compiling this data is costly and someone has to bear that cost. Do you expect to have full data access when researching stocks? Do you expect to have full data access when researching financial advisors?
One of the most important factors in validity of the statistics is in sample size. What’s difficult in the monthly stats is that it only reflects the snapshot of a specific month change year to year. So there’s a lot of noise that can happen. My explanations will include both types to better accommodate that noise.
The other impact is inventory changes. While development sales are NOT counted in the MLS statistics, the impact of it is still felt. Here are a few examples:
New homeowners – filling up the inventory of new homes to be affected down the road at sale
Upgrading homes – selling their current home to buy into a new project
Investors – looking to sell at project completion, hold for time, or buy and hold as rental
Areas also matter. As the Ewa Plain area accounts for 22% of the total single family homes and is the highest developing area, the impact of total homes, median price, and median price increase disproportionately affects the Oahu statistics. As pricing is neighborhood specific, the summary statistics may not properly represent your specific neighborhood. This is where I believe causes Zillow’s estimates to be skewed.
What do the stats mean?
Median Sales Price – a better representation of the “middle class” home price than the mean
The myth of the “average” is just that, and the definition of the mean as the average is just that. In almost every sense of the word, the median is “a better summary measure of a sample or population than the mean”.
Closed Sales – the amount or volume of homes sold
Average Sales Price – the total $ volume divided by the closed sales
You can see how different it is from the median sales price as one or two sales at the top or bottom end can easily skew the data points
Days on Market – amount of days a home is ACTIVE (available for purchase) on the market
When taken in context of the median days on market, a strong measurement of the overall market being either a “sellers” or “buyers” market
Why are these stats used?
It is the easiest and best snapshot of the market condition as it’s the top few weighted indicators of the market. Ultimately where it falls short is to explain the causation but that can’t be done without an entire blog post dedicated to it.
Is there a way to explain what market we are in using these stats?
Sure is, I just need to remember what the name of the theory is and I’ll update. Or you can ask me personally!
Which stats matter?
The above are the top stats that typically matter the most. Others include:
Months of Inventory – amount of time it takes for the entire market inventory to turn over (sell)
Experts note 6 months is the neutral point for buyers or sellers market, with under being variations of a seller’s market and higher being a buyers market
Percent of Original List Price Received – original list to sold price as a percentage
Reflects strength of market trend, with 100% theoretically being a neutral market but realistically 95-97.5% being closer to the neutral point
What stats don’t matter?
price per square footage – a very weak indicator as the majority of the value is in the front portion of the home. Experts note that 50% of the value is in the front 25% of the home and doesn’t account for different home types, directions, views, up/down slope, upgrades, etc.
Condos – grouping of condos AND townhomes
Single Family Homes – includes both attached and detached single family homes