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There’s always a story in the numbers…creating FUD from that story is the media’s job; making sense from it is mine

Kevin Boer, Broker Owner, 3 Oceans Real Estate, Inc. ()

October 25th, 2006 · 8 Comments

If there’s one thing I learned from my tenure in consulting (apart from the names of the cabin crew on the mid-Sunday afternoon American Airlines flight from SFO to JFK…) it’s that the numbers always tell a story.

Remember this neat little chart from our little “Frolick with the data” yesterday, provided by those whiz-bang numbers folks at Altos Research?

median-price.png

Statistically-challenged reporters (is there another kind?) look at this and concoct two dramatic headlines, depending on whether you look before or after July 2006: “Prices drop dramatically!” or “Prices increase dramatically!”

Both headlines are, technically, true — in the same sense that your favorite team’s one-game loss could be a “losing streak” and a one-game win could be a “winning streak.”

What’s behind these numbers?

Quite simple: The variation in prices this year in Palo Alto is due nearly entirely to the difference in home size. Put another way, home prices fell between January and July because smaller homes were selling, and home prices rose between July and October because larger homes were selling. Boring facts like that don’t sell newspapers, however, which is why you’d never get an explanation like that in the San Jose Mercury News.

Check this out:

2006-10-25_18-39-19-359.png

From January to July, median prices dropped 17%, most steeply between January and May, and less steeply from May through July. From July till now, prices have increased 13%.

Now let’s look at what happened to median home sizes during that time:

2006-10-25_18-42-23-859.png

Uncanny, isn’t it? From January to July, we get a 20% drop in median square footage, and again we have a more steep decline from January to May, and a less steep one from May to July. From July till now, we have a 13% rise.

The fall and rise of median property prices matched nearly identically the fall and rise of median home sizes. The mild difference between the two sets of numbers — a 20% drop in sizes, but only a 17% drop in prices — is fully explained by the differences in price per square foot:

2006-10-25_18-46-50-375.png

So what’s the real story? It’s not “Prices are falling!” or “Prices are rising!” but something far more boring and completely unlikely to sell newspapers: The price per square foot of homes in Palo Alto has stayed pretty much the same this year, varying by less than 3%. For the first 7 months, there was a steady 20% decline in the size of homes being sold, followed by a steady 13% increase in size.

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