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Lies, Damned Lies and Real Estate Statistics 

Andrew Zsolt
Broker of Record
Coldwell Banker Terrequity Realty, Brokerage

A recent article by Mr. Stephen Dupuis in the Toronto Star referenced a famous quotation by 19th-century British Prime Minister Benjamin Disraeli while trying to make sense of housing statistics. The quote, "there are lies, damned lies, and statistics," seems to be particularly germane when it comes to what appears to be conflicting, or at least confusing, coverage about today's real estate market.

While I don't dispute the accuracy of many of the reports in the media, the point is that much of these statistics are not put into the proper context, so that the consumer is left with an unclear or even inaccurate perception of conditions in their local market. For example, recent reports from the Canadian Real Estate Association (CREA) indicate that sales in Canada dropped by 30 per cent this July compared to the same period last year. Prices, as well, were on the decline according to CREA, with a drop of 3.5 per cent from June 2010.

These statistics seem to indicate that the market is going through a decline. The consumer is left with the conclusion that we should all run for the hills (because the bubble is about to burst). In most cases, nothing could be farther from the truth.

How is the real estate market really doing? And more importantly, what are the reasons behind it? On closer investigation, you may find that the dip in the July numbers is simply a result of a large number of transactions being pushed into the first half of the year because of the introduction of the HST. In fact, CREA has already said as much, but this point is often overlooked in favour of more controversial statistics.

This all brings us to the burning question: How should the average consumer interpret real estate statistics and use them to make decisions?

In reality, there is often a huge difference between the isolated statistics we see reported in the media and the real situation. In today's changing market, Disraeli's quote seems especially relevant.

Let's assume you are a homebuyer or seller in the GTA. What should you be looking at to make your real estate decisions? Although there is no one right answer, there are at least four factors to think about when reading published reports on the status of the Canadian real estate market. These include:

  1. Think local
  2. Look at the big picture
  3. What's happening with interest rates?
  4. Focus on six and twelve month snapshots

Let's look at these in more detail from the perspective of a homebuyer or seller in the GTA.

1. Think local:
Real estate is local. Focusing on an average sale price for all of Canada is extremely misleading as markets vary significantly from coast to coast – and sometimes even within the same community! In terms of decision-making, an average selling price for the whole of Canada is about as relevant as the average depth of the entire ocean. If you're afraid of deep water and taking a dip off the coast Florida, you'd typically want to know the depth of the water where you're swimming, not the average depth of the world's oceans. Similarly, you should only heed the average sale price in your city – or better yet, within your target community – rather than the entire country.

Perhaps the worst thing that a GTA homebuyer or seller could focus on is broad, national measures as suggested by CREA. Clearly, these statistics are important for the overall country, but they may have no relevance to what is happening to the value of your condo in Bloor West Village. In fact, the average number of condo sales in that neighbourhood did not drop at all for July; instead, the sales in TREB's W01 district went up by a whopping 66 per cent! So much for the relevance of national statistics. If you want to know the conditions in your local market, talk to your local professional.

2. Look at the big picture
The real estate market is influenced by a number of factors that, in the long run, have a huge impact on the value of real estate in your local market. Some of the main factors that affect real estate valuations include:

  • Population growth,
  • Economic growth (typically measured by GDP),
  • Employment growth, and,
  • Of course, interest rates (we will deal with this in the next section).

How is the GTA faring in terms of the above? The GTA population continues to grow as Toronto maintains its rank as one of the best places to live in the world. Toronto ranked as the 16th best city in the world for quality of life, according to the 2010 Mercer Quality of Living Survey. Small wonder we are one of the strongest cities in Canada in terms of in-migration.

In 2008, the website of U.S. business magazine Forbes ranked Toronto the 10th most economically powerful city in the world. The city's growth continues to outpace the rest of Canada with Toronto's economy expected to grow by 3.7 per cent in 2010, according to the Conference Board of Canada. By comparison, the national economy is forecast to grow by only 2.6 per cent this year, according to the Bank of Canada.

Toronto's employment numbers are also impressive. Since July 2009, employment has risen by 3.3 per cent, according to Statistics Canada.

Clearly, based on the above considerations, the Toronto economy is faring well. This would indicate an increase in demand for homes and a long-term appreciation in property values. We have sound reasons for optimism in the GTA, despite what CREA reported in the month of July for the national scene.

3. What's happening with interest rates?
Interest rates have a huge impact on the status of the real estate market. Clearly, the higher the interest rates are, the less affordable housing becomes. What has happened to interest rates recently? Simply stated, not much.

Interest rates continue to hover at levels we have never seen before (at least since 1935, the earliest the Bank of Canada has interest rate records available).

What is likely to happen to interest rates in the future? Again, not much change is expected from the all-time low interest rates as the world continues to struggle out of the economic downturn. Until most of the world's economies get back on track, inflation should not be a problem, nor are there likely to be many prospects for significant increases in interest rates.

4. Focus on 6 and 12 month snapspots
One of the worst things that a real estate buyer or seller could do is focus on month-to-month comparisions (i.e. this July versus last July). Why? One month does not make a market. The one-time-only push to close sales in June to avoid the July HST is just one example of how a short term 'blip' can throw off a month's stats. More importantly, any percentage can look good or bad depending on the starting point.

By way of example, this February we had a 77 per cent increase in sales over February 2009. This is an extremely impressive figure if you don't know that February 2009 was one of the worst months on record for real estate sales, with a drop in sales of 32 per cent from February 2008.

In essence, the smaller the snapshot, the more misleading the numbers are. It's similar to saying that you'll be obese if you eat 1,000 calories for breakfast. In reality, what matters is how many calories you take in every day, not just the one meal.

Looking at a six-month average, for example, paints a very different picture. In fact, sales in the first six months of 2010 have increased 23 per cent from the same period in 2009.

Overall, the Toronto real estate market is in good shape as the city continues to be an excellent place to own and hold real estate. When you next come across doom and gloom from a source of real estate information (which you surely will), go back to these four tests -- I'm confident you'll get a very different interpretation on what is actually happening in the market.

Above all, remember: when it comes to understanding isolated reports, there are lies, damned lies, and real estate statistics. If you want an accurate picture of what is really going on, talk to a sales professional who knows your local market.

Posted on Tuesday, September 21, 2010 at 04:06PM by Registered CommenterElaine in , | CommentsPost a Comment

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