What was your worst public interaction in recent years? Think of a time when you were mean or rude to a complete stranger. You might not have intended to come across that way…. but you did. Ouch! We’ve all been there, and while I wish I was an exception, I’m certainly not. Now think of the person who experienced you as rude or mean. You might be the complete opposite in most of your life, but all this person knows of you is from that one unfortunate moment. Your larger body of work (your life) shows you are a kind and friendly person, but when someone only sees a clip of your life instead of the entire reel, that person may not have an accurate picture of who you really are.
The same thing happens in real estate. Sometimes we get so fixated on the most recent moments of data that we don’t see the bigger picture of the market. It’s like we see the trees instead of the forest, which also means we end up talking about “trees” to clients instead of giving them a fuller picture. Let’s take a look at a few examples below to help show how a wider focus on the numbers can be a huge benefit when trying to digest and explain the market.
Three examples of using consecutive months vs. last year:
Month: Sales volume declined 6.1% from September to October.
Year: Sales volume is up 7.9% when comparing October 2014 with October 2015.
Month: It took two days longer to sell a house last month than the previous month.
Year: It was taking one week longer to sell a house last year.
Month: The average price per sq ft declined by nearly 1% last month.
Year: The average price per sq ft is currently 7% higher than exactly one year ago.
I know, we can make numbers say whatever we want them to say, and that is something we always have to be careful of in real estate. But sometimes when we only compare sequential months, we are missing something important: The seasonal market. Since real estate tends to behave in a fairly predictable cycle each year (hot spring season and cooler fall), it becomes very powerful to make comparisons not only with consecutive months, but on a yearly basis. In other words, it’s telling to see what the market was doing in October 2015 compared with September 2015, but it’s just as relevant (if not more important) to compare October 2015 with October 2014. For example, in the case above when we only look at consecutive months, we might report that sales volume is declining, it’s taking longer to sell, and values are declining. Yet when we pan out for a wider view by comparing numbers from October 2015 with October 2014, we see a more well-rounded picture of the market. Sales volume is actually higher this year, it’s taking one less week to sell a house, and values are also higher than they were at the same time in 2014. Don’t get me wrong, monthly information is incredibly valuable and we need to pay attention to how the market is changing right now. But at times too much emphasis on consecutive months of data can obscure our view of the bigger picture. Thus we are left saying things like, “Sales volume is declining” or “values are dipping” when the bigger story is sales volume is actually higher this year (and it’s normal for values to soften in the fall).
Action Step: Next time you talk about the market in a newsletter or in an appraisal, compare numbers over the past couple of months, but also talk about numbers from last year too. For example, in coming weeks if you discuss sales in November, you can compare November 2015 sales with October 2015, but make it a point to also compare November 2015 with November 2014 numbers. It can be very eye-opening to make comparisons like this. I might suggest talking about sales volume, inventory, days on market, and price.
Remember, there is no one right way to explain the market. Just do your best to see the bigger picture (the forest) while you explain the latest (the trees).
I hope this was helpful.
UPDATE: I’m not sure I was as clear as possible, but consecutive monthly trends are VERY important to digest so we know if the market is slowing or growing. This is why I advocate using a CMA to gauge the temperature of the current market as well as knowing the signs of a market slowing (this requires us to use month-to-month numbers). This post is simply highlighting the importance of gleaning a better context for interpreting and reporting the market.
Questions: How do you see the forest through the trees in real estate with so much information these days? What are the positives and negatives of comparing month to month vs year over year?