Thursday, October 23, 2008

blah, blah, blaffelgab

Home price slide may be over-stated.
Canadian home prices cooled last month, but the depth of the correction may have been exaggerated by distorted data, says...TD Securities Inc.

The average price of a resale home across the country's 25 major markets fell by an estimated 6.2 per cent year-over-year in September, according to a report last week from the Canadian Real Estate Association (CREA).

The decline was larger than many market watchers had expected, and added to fears the Canadian housing market could go into a U.S.-style freefall.

However the price drop was led by a 43 per cent plunge in the number of homes sold last month in Vancouver, the country's most expensive market.

“The crux of the issue is that unless the underlying cities are properly weighted...the results can be biased by dramatic changes in the volume of the sales in certain cities,” said the report by TD economists Millan Mulraine and Eric Lascelles.

Currently, the average existing home price is calculated by using an average that gives each city a weighting based on its contribution to overall sales, Mr. Mulraine said. TD recalculated the data by fixing the weighting to last year's data instead, which is a more standard method of calculating year-over-year comparisons for economic data, he added.

Under the new weighting system, last month's average existing home price decline would be a more moderate 1.3 per cent from Sept. 2007, the TD report said.
Here we go; if you don't like the numbers, just change 'em, or at least, change the way they are interpreted. This same thing has been done with inflation numbers, unemployment numbers (if you are not receiving benefits, or have given up in despair, you are not unemployed!), and who knows what else. It is just so much Newspeak - a la 1984. The stock market has not really crashed since July, it is up significantly since 1934! Trillions have been made! You are not really older than you were 20 years ago, your hair is not grey, and you don't really weigh more than you did in high school - you are actually younger than your parents! (and your hair less grey), and you weigh a lot less than Luciano Pavarotti! There, don't you feel better now?

Prices 8% less than last year are prices 8% less: who gives a flying fig what the volume of sales is?


Will said...

No. TD is right. They are speaking of the problem of averages. The average price in Canada (a mighty big piece of land) is down more when than when they take into accounted weighted averages, or if they were to look at benchmarks. Port Moody was down 20% year over year but that does not mean that the $300k townhouse was selling for $240k. It means that last year some very expensive properties sold and brought the whole average up.

I have run into this same issue with my weekly stats. There was a house that sold for $10m. Taken into account the whole average was up $40k from the week prior. Taken out and the average was down $2k from the week prior.

So if Vancouver's crumbling market affects the whole nation's average disproportionately then TD has a right to say it. Too bad they didn't say the same thing on the way up... and that is where your beef really should lie.

jesse said...

TD is technically correct but even weighted averages can be skewed due to variability in sales mix. This is exactly what happened in Cali at the start of the downturn. More recently, though, the average there likely overstates price drops since most of the stuff that's moving is the lower priced stuff in FC.

Again, these guys are missing the real issue. The fact that sales are down 42% and skewing the numbers should be a big giant flashing buzzing red light that things are not going well in LotusLand.

It's even being held to TD on a silver platter. They have great data from their unfortunate counterparts in the US about low sales being a precursor to significant price drops but somehow I think $ received from mortgage originations is too addictive to quit.

I realized over the past week how expensive foreclosures really are -- they can be in the $20K-30K+ range easy, plus the inevitable fallout from the odd deadbeat owner. When TD asks for 20% down (no CMHC backstop), it takes far less than a 20% drop before they are in the red on the loan. I am certain loans are going to be much harder to find and renew once 10-15% "weighted average" drops YOY are baked in and another equal % drop looks likely.

Dave said...

Average was fine on the way up???

solipsist said...

Thanks for the clarifications (and further commentary) will and jesse. I still think it is FUD, one way or another.

Sadly (for me...?), I am not a details-oriented person, and my eyes glaze over when "benchmark", "average", "weighted average", and such get thrown into the mix. The long and the short of it is that prices are reversing, there is a global money/credit problem - which is in its early stages (as far as I concern myself), and the bleeding has barely begun.

I find it remarkable that all of the "experts", with their forecasts saw but a moderation to single digits in appreciation just last spring, while prices are sliding, and inventory just sits. The shitey thing is, people make huge financial choices based on their data and prognostications.

It was a cheap post, and I spent more time on the photoshopping than interpreting or writing (li'l solipsist refuses to nap long enough for me to do things justice). I have to admit that the post was just an excuse for doing a photoshop.

solipsist said...

Here is a good quote that I just received - If you don't read the newspaper you are uninformed. If you do read the newspaper you are misinformed.
— Mark Twain

Could this be pertinent? Grin.

jesse said...

"people make huge financial choices based on their data and prognostications."

Somehow I think the elixir of today's money was too good to argue against in the boardroom.

"Let us be thankful for the fools. But for them the rest of us could not succeed." -- Mark Twain

Big E said...

The fact of the matter is that stats can be used to say whatever it is you want to say. You just have to choose the right metrics.

jesse said...

"stats can be used to say whatever it is you want to say."

Which is why humans invoke critical thinking, something notably absent in many "experts'" analysis. Statistics are tools but are close to useless in the hands of apes.

solipsist said...

Which is why humans invoke critical thinking, something notably absent in many "experts'" analysis.

I would posit that as some humans invoke critical thinking. In my view, there is a paucity of critical thought these last years. That is why there were bidding wars on POS tear-downs, 0%/40 mortgages, low voter turn-out, and so many who just vote for the colour that their parents voted for. That is why there were thousands of votes cast for candidates who were not even in the running anymore.

Did anybody catch the Congressional hearings involving Greenspan? Wow. I will be writing about that (I hope).

92129 said...

Au contraire Solipsist,

Sales volume and where it is heading tells a bigger and more important forward looking story. Prices follow demand and demand has left the building.

On the bright side, 2010 is around the corner. Many writers have predicted this to be the bottom of the market in the US. It also corresponds to the beginning of the Olympic hangover. But dont worry, after awhile, you forget about it like they did in Montreal and then 25 years later, articles will come out saying how the debts are finally off the books.

I think the trough will be pretty long YVR, which should give everyone a good chance at getting YVR RE at a reasonable price.

Big E said...

"I would posit that as some humans invoke critical thinking. In my view, there is a paucity of critical thought these last years."

Completely agree. Far too many people just lap up the crap they are fed, regurgitate it and try to pass it off as "thought".

sutluc said...

"There are three kinds of lies: lies, damned lies, and statistics."

SurreyJoe said...

TD is right but kind of interesting that nobody cared about this statistical error until now. Don't worry - if are cheering for lower prices - you will be liking the next few months.

Rob said...

Our landlord is at our house right now looking to make some repairs. She is in a panic to sell the house. The reason from what I can understand is that her investments/ investment incomes have declined and she needs a cash injection fast. She doesn't seem to be taking into account the direction that real estate prices are heading.

I wonder how many other landlords are watching their stock market investments decline and putting their homes on the market to make up for those loses?