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Kevin Boer, Broker Owner, 3 Oceans Real Estate, Inc. () |
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?
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:
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:
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:
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.
Tags: 94301, Altos Research, For buyers, For sellers, Market-update, Palo Alto, Real estate, San Jose Mercury
Tags: 94301 · Altos Research · For buyers · For sellers · Palo Alto · Real estate · San Jose Mercury
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8 responses so far ↓
1 Real Central VA - Tracking the Charlottesville and Central VA real estate market and more » Prices fall because home size is falling // Oct 26, 2006 at 4:14 am
[...] You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site. Leave aReply [...]
2 Athol Kay // Oct 26, 2006 at 12:30 pm
Best blog article I have read in weeks. Make sure you submit it to the Carnival.
3 Eilam // Oct 26, 2006 at 4:48 pm
Thanks. Good analysis.
However - it does beg a follow-on question. What can we learn from the down-tick and later up-tick in sizes of houses being sold ? Is there rhyme-and-reason underling the observed trend (which you very accurately analyzed) ?
I think ’sizes=total price’ (i.e. it isn’t that people are all of a sudden interested in larger or smaller houses at certain times of the year).
What is interesting to ask is: is this a pattern change in demand or in supply (i.e. is the reason smaller houses were selling for a while because larger ones were not on the market, or because they were on the market but people were not buying ?).
Also - what would be interesting is to overlay it with a possible ‘culprit’: interest rates.
Is the swing in ‘house sizes’ (again in my mind possibly an ‘alter-ego’ of total-purchase-price) correlated to changes in interest rates ?
Eilam
4 Part 2: There’s always a story in the numbers…creating FUD from that story is the media’s job; making sense from it is mine at Three Oceans Real Estate — Insights from a Wired Bay Area Realtor // Oct 26, 2006 at 5:52 pm
[...] A friend of mine named Eilam, also a numbers sort of guy, made an interesting comment about my previous post in which I dissected the year-to-date real estate numbers for Palo Alto, CA. He challenged me to look still deeper into the numbers and try to figure out whether I had the cause-and-effect in the right order. [...]
5 Real Central VA - Tracking the Charlottesville and Central VA real estate market and more » Real estate carnival 10-30-2006 // Oct 30, 2006 at 4:28 am
[...] Finding the story beyond the numbers. [...]
6 Todd Tarson // Oct 30, 2006 at 2:40 pm
I’m simply shocked that the media let facts stand in the way.
7 Athol Kay // Oct 30, 2006 at 6:25 pm
Made the Carnival! I called it!
8 Can you win a lottery without buying a ticket? Looks like I just did… at Three Oceans Real Estate — Insights from a Wired Bay Area Realtor // Nov 5, 2006 at 11:34 am
[...] Well, that’s what happened this last week with my post on real estate numbers that I entered into the Carnival of Real Estate. Alas, I didn’t win — the prize went to a better post from a better writer, Jim Cronin at the Real Estate Tomato — but what I did win was The Best Post of the Week, Anywhere at PoliticalCalculations (permalink most likely this, but it’s not live yet.) [...]
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