Wednesday, February 17, 2016

Why You Should Ignore Average Home Prices Reported By The Media

  I must confess that ever since I got into real estate I have had a love affair with statistics.  In my prior corporate jobs I was expected every month to know and explain the "numbers" for the businesses that I was running from sales budgets to profit or loss statements.  Since entering real estate, I am always being stopped in the grocery store or on the street by people asking how's the real estate market and most of my peers regard me as being the "stats guy."  When asked about how the market is performing I feel people are entitled to more than just an unsubstantiated answer such as "great" or "it's booming" or "things are a little slow right now" and so on.  That's why my Facebook page and this blog will always contain a fair amount of statistical information about both local real market activity and the market across Canada as well.
  For years I have had a real problem with the term "average price."  It's a meaningless number yet it is a number touted all too often by the media. In my opinion it misleads the public about the equity they have in their homes suggesting that changes to "average" home prices in various markets reflects increases or decreases in the value people have in their houses. Nothing could be further from the truth.  Our local real estate association the Southern Georgian Bay Association of REALTORS® of which I am a Past President has always refrained from including "average" pricing statistics in our media releases.
  The average price is simply obtained by dividing the total dollar volume of sales for a given period such as a month by the number of sales in the month. Example:  During this past January there were 24 single family homes sold in Collingwood yielding an "average" sale price of $409,127, which represents a 2.1% increase over the "average" price from December.  If I merely add two more sales to January one at $250,000 and one at $300,000, the "average" price slips from $409,127 to $398,800.  That's a drop in the "average" price of 2.5%.  Does than mean your Collingwood home dropped in value by 2.5% or over $10,000?  Of course not thus this highlights the pointless nature of discussing "average" prices.  
  To better address the issue of price appreciation or depreciation, the Canadian Real Estate Association (CREA) developed the MLS® HPI (Home Price Index), a concept modelled after the Consumer Price Index.  The MLS® HPI measures the rate at which housing prices change over time taking into account the type of homes sold. Before the original HPI was introduced in 1996,  REALTORS® and the public relied on monthly average pricing statistics to understand trends in housing prices.  Averages, however, can be very misleading as I have demonstrated since the quantity and quality of the properties sold in any given area change over time for any number of reasons.  As a result, average prices can fluctuate dramatically, making the housing market appear unstable. 

  The next time you hear the media talking about "average" home prices as television newscasts often do, my recommendation is to change the channel.  Your home is perhaps the most valuable asset you own.  To get a true sense as to it's current value, contact a REALTOR® and ask them to prepare a detailed comparable market analysis showing you what you home is worth based on other comparable sales in your area.  The MLS® Home Price Index is a good indicator as to the changes taking place in the market but even then it's changes over time and one or two months doesn't reflect a trend that you should be concerned with.   
  If you have any question about this topic and any other real estate related issues, please feel free to Contact Me, I would love to offer you help without obligation in meeting your real estate goals.   

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Royal LePAGE Locations North (Brokerage)

330 First Street, Collingwood, ON L9Y 1B4


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Rick relocated to Collingwood from Toronto in 1985 through a transfer with Goodyear Canada. In 1987 Rick was recruited by a major client of Goodyear’s, managing their Canadian business based in Barrie before moving to Chicago in 1992 as Vice President of Sales & Marketing. Upon returning to Canada in 1996, Rick ran an industrial products manufacturing company in Stratford, Ontario. In 1998 Rick returned to Collingwood with his two children. Rick is a licensed real estate Broker with Royal LePAGE Locations North in Collingwood and holds his MVA designation (Market Value Appraiser-Residential). He is an active volunteer in the community serving several years on the Board of Directors with the Collingwood Chamber of Commerce as Treasurer, 6 years on the Board of Directors for the Southern Georgian Bay Association of REALTORS® of which he is the Past President (2008) and currently serves on a committee with the Ontario Real Estate Association. Rick is a diverse executive manager with extensive experience in strategic planning, manufacturing, finance, human resources and quality assurance management.