Previously I wrote how the Florida Association of Realtors® (FAR) uses the Median Sales Price to paint an artificially optimistic view of the local real estate market (click here to see that post). However, using the median statistic to dupe consumers into thinking that home prices are stable is not exclusive to FAR; the local media may be the biggest real estate cheerleader of all.
Consider the article Paul Owens, the Sun-Sentinel’s real estate reporter, wrote on July 26, 2007. In the article, he wrote:
“Sales of existing homes in Broward County tumbled 22 percent last month, to 674 from 861, the Florida Association of Realtors said Wednesday.”
“But the median price of an existing home in the county rose a modest 1 percent or $4,600, to $382,000 from $377,400 a year ago, the association said. Tallahassee and Ocala, north of Orlando, were the only other areas in the state to have median price increases in June.”
Then today, the exact same writer for the exact same newspaper wrote the following:
“South Florida's housing market continued to fade in the second quarter, according to the Florida Association of Realtors. Existing home sales were down 24 percent in Broward County from a year ago, while Palm Beach County sales slid 21 percent.”
“The median price of a single-family home in Broward was $372,200, virtually unchanged from $373,000 a year ago.”
In first article, Paul Owens explained that median sales price “rose a modest 1 percent.” In the second article, the author declared that median sales price was “virtually unchanged.” As a result, most readers of the two articles would conclude that the median sales price was stable.
However, nothing could be further from the truth. Using the same statistics, we show that in Broward County the median sales price was $382,000 in June 2007 and $372,200 for July 2007. This is an amazing an amazing 2.6% drop in just one month – something Paul Owens did not bother to disclose.
This is significant because if annualized, this one-month 2.6% drop will compound to a 26.8% drop. Why didn’t Paul Owens explain in the story that we saw an annualized 26.8% drop in median prices since last month?
I don’t mean to suggest that month-to-month comparisons of median sales price provides a fair gauge of our local market -- it does not.
My point is the median sales price is an absolutely worthless statistic – one that should never be used as a gauge real estate market condition. Anyone that is closely following the local market knows that prices have fallen dramatically in the past year (just check out the daily F-cked Buyer posts). It is a shame that the efforts by FAR and our local media to distort the truth will keep most consumers understanding the reality.
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5 comments:
The 'Median Price Myth' is the most often-used tool of housing cheerleaders and homeowners that are in denial.
I say: look, if believing that home prices are down only 1% makes you feel better, great. Also, if believing in magical unicorns makes you happy, fine. But it doesn't change the reality.
There's no point in explaining to housing cheerleaders why the median price is a useless statistic. They won't get it.
What I say instead to these housing cheerleaders that love to bring up median price is this: look at you OWN home and other homes for sale in your neighborhood or subdivision. If you wanted to get an estimate of what your home is worth, would you look at the median sales price data in the paper? Of course not. Look at the COMPS.
Look at homes that are similar or identical to yours. Specifically, look at what those homes have sold for recently. Compare those sales prices to the sales in late 2005. Do you come up with a 1% drop? No--it's somewhere between 10-35%, depending on where you are. And if you came up with anything less than 10%, you're obviously cherry-picking sales that support your desired value. If you live in a condo or a cookie-cutter subdivision, your unit is essentially identical to all the others. Buyers are not going to pay you back what you spent fixing your property up nicer than the others. You'll get part of that money, but nowhere near 100%.
Bottom line is, no matter what the paper says, it doesn't change the fact that YOUR home's value is down double digits.
Figures often beguile me, particularly when I have the arranging of them myself; in which case the remark attributed to Disraeli would often apply with justice and force: "There are three kinds of lies: lies, damned lies and statistics."
- Autobiography of Mark Twain
I terminated my conversations and availability for quotes for Mr. Owers articles last January. He is on a short list of reporters I will not talk with due to accuracy in reporting problems.
In my experience dealing with the print media in Florida I've found the reporters at the Sarasota Herald Tribune, S. Florida Business Journal, and Tampa Tribune have been on the cutting edge of correctly reporting the boom bust cycle. My hats off to those papers willing to report truthfully in a time of declining real estate advertising revenue.
Mr. Owers forte is not real estate reporting, and unfortunately, he's the lead real estate reporter for the paper. This renders the paper at a disadvantage of factually documenting the great housing crash that began here in 2005. Keep up the good work on this new blog. Best wishes.
Jack,
Thanks for you insight.
It was actually Paul Owen's reporting (or lack thereof) that prompted me to start this blog in the first place. It's a shame that such a large metro area has such shameful coverage by its sole newspaper.
I've been reading and watching your analysis since 2004.
You predicting the current collapse back when most in the real estate industry were still blinded by their irrational exuberance.
It good to know that you're dropping by occassionally.
SFHB
As bad as things are in South Florida retail prices and sales may look good now compared to what they may be in 6 months. We have not reached bottom. IF the economy goes into recession and worse yet we are hit with a few major storms in the fall with high maintenance assesments they will be refering to 2007 as the "good times". Yes, I agree the the rich will still keep on buying but if they feel that the $2 million condo will only be tworth $1.5 million next year they will also wait to buy. There is a huge glut on condos. Things will get allot worse before they get better.
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