If you’re like most real estate professionals, you’ve been confused at one time or another by real estate market reports that seem contradictory or that just make no sense when compared to what you’re experiencing in your market.
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When one report has home sales up and another has something different, which is right? If prices are soft where you live, but all the national reports in the news have prices zooming, what do you tell your sellers when they want to price their homes too aggressively?
News coverage of national reports sets your clients’ and customers’ expectations. Reports that confuse them can make life miserable. There are dozens of different “national” market reports today, and all are done in different ways, at different times, covering different markets, comparing different time intervals, and using different definitions of sale, time-on-market, and inventory. Cutting through the clutter and understanding which reports are reliable and useful is important.
Once you know the basics, you can understand how to use the wealth of real estate market information to make more informed decisions and successfully counsel others.
1. Different kinds of data create different results
Just like baking a cake, what goes into a report determines what comes out. Real estate market reports use four different kinds of data: listings data from MLSs; public data from actual transactions filed in courthouses; appraisal data from software platforms maintained by mortgage servicers and appraisal management companies; and surveys of real estate professionals or consumers.
Each kind of data has strengths and weaknesses. Here’s a summary:
2. Check the report’s time period and the markets it covers
Nothing’s more frustrating than to compare the latest data from your MLS to the latest Case-Shiller release. First, Case-Shiller uses public data, and the quarterly report is released two-and-a-half months after the period it is reporting. Second, Case-Shiller consists of two different indexes derived from 30 and 40 market groupings, largely major cities. If you’re not in one of those markets, the findings don’t relate to you at all. Other very slow reports are the government’s FHFA report and FNC.
3. Look first to your MLS
One of the great ironies in real estate is that, although all real estate is local, it’s much easier to get market information about the nonexistent national market than your local market. Filling that huge local void today are multiple listing services. Most MLSs provide their members with market reports that break down data by municipality, county, or ZIP code. There is no better source of market information for most Realtors.
In addition to MLSs, many markets are home to consulting real estate economists who report on local markets. Also, many leading graduate schools of real estate conduct market research. (Here’s a good list.) If you live near one, you might give them a call.
However, as noted on the table above, listings data have their shortcomings, chiefly with prices. Listing prices represent only one side of the transaction: the sellers. Generally, list prices are as much as 5 percent above the final prices, but that can vary. In a seller’s market, list prices are closer to the final number, but I imagine that as a Realtor, you have a good handle on that.
4. There is no such thing as the last word or a perfect report
You might encounter two separate reports on your market. Each covers the same time period and uses the same kind of data, yet the results differ. Why?
The fact is that no report is the final word. Differences in the exact time period the data covers, the exact geography, the variables that were measured, the algorithms the statistician used to weight the data, etc., can all produce differences in reports.
Look to see how each report was conducted and note the differences. Decide which best fits your needs and your market. Just as a doctor uses more than one test to decide on a diagnosis, consider the reports together to get a balanced picture.