Do You Believe Real Estate Headlines?

Well, let’s have a look at a recent headline in the Toronto Star:

“Existing home sales soar 87% in ‘crazy’ January”

The article that followed commenced:

“The deep-freeze of January is usually a signal for realtors to take a winter cruise or perhaps a vacation in the Caribbean. But not this year.

“We were hoping to get away somewhere warm, but the market has been crazy,” said ABC, an agent….”

I would assume that you would conclude that the January sales were unusually strong. This January is stronger than most Januarys, and the market is “crazy”, being indicative of something rather unpredictable, and unanticipated.

I suppose, if I said that “things looked normal”, you wouldn’t be impressed, and if I was the editor of a newspaper, I would be sent back to the drawing board.

So, let’s have a look at the actual facts. I know that sometimes they can simply get in the way of a good headline, but they are still worth looking at.

Here are the January sales for the last few years:

2004……..4,256
2005……..4,143
2006……..4,585
2007……..5,173
2008……..5,075
2009……..2,670
2010……..4,986

To make the headline work, you have to compare 2010 to 2009, and “nothing else”. Forget about truth in advertsing!

In order to determine the central tendency or the predictable number of January sales, “all things being equal”, you could select the average, which would be 4,413 or the median, being the mid number, that is: 4,585.

However, in most situations there is a slight qualifier and that is “all things being equal”. Last year, there was a substantial aberration. The economy was still in the depths of a major world recession which followed the potential collapse of the worldwide financial system in late 2008. Stock exchanges throughout the world had just lost one half their values. The real estate market folded in late 2008.

Eventually, buyers returned to the market, but not in January 2009. Under the circumstances, it is reasonable to drop January 2009 from the calculations, and proceed using all the other numbers. In that case the average is 4,703 and the median is 4,786. Giving equal weight to both approaches we are left with 4,745 as being the reasonably predictable number of sales that might be expected in the month of January, “all things being equal”.

Really, that boils down to 241 extra sales this January. That’s a 5.08% increase. And, it is worth mentioning, of course. How do you think the headline sounds now:

“Existing home sales soar 5% in ‘crazy’ January”

Not quite so impressive! Well, I guess I’m not going to get a job at the newspaper!

Or, what about:

“January 2010: Third Highest Sales in Last 5 Years!”

I’ll keep working on it.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com