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

One hears California home prices have dropped 40% or reads that SF “Metro Area” prices have declined 30%. One recent article insisted some SF districts had experienced double-digit appreciation in 2008. (Sorry, no.) The media loves dramatic (i.e. usually bad) news; some agents deliver only the rosiest view. These analyses might quote median or average prices, dollars per square foot, or values based upon secret algorithms — each of which may generate different conclusions. They can encompass sales of houses, condos, TICs, resale homes or new construction — each of which can be dissimilar markets. If the calculation is based on too short a time period, the number of sales is too small to be statistically reliable; if the period is too long, it may mix data from both before and after major market shifts, muddying the current reality.

With statistics, the devil’s always in the details.

Averages are easily skewed by one or two sales higher or lower than usual. The median price, most often quoted, is that price at which half the homes sell for more and half sell for less, and can be dramatically affected by changes in buying trends as well as changes in values. If the market makes a shift to lower-end homes, such as has happened recently (financing difficulties for more expensive homes and increasing foreclosure sales in less affluent areas), the drop in median price is larger than the decline in values. The median sales price for houses in SF has been hammered by the numerous foreclosure sales in Bayview-Excelsior. Which doesn’t mean that Noe Valley or Presidio Heights values have fallen 30% to 40% in the past year. Location, location: the Bay Area is full of financial microclimates — for example, depending on location, foreclosure sales range from less than 1% to more than 60% of total sales. The statistics for California don’t apply to the Bay Area; Bay Area stats don’t apply to SF; city stats don’t apply to specific SF neighborhoods. There are city neighborhoods, generally in the SE quadrant, where values have dropped 20% to 30% from their peak. Most areas of SF have probably seen declines in the 10% to 15% range. In some neighborhoods, there have been too few sales since September 15th to make a meaningful calculation.Statistics are generalities and the market is changing rapidly. Ultimately, market value is defined as that price a qualified buyer is willing to pay when the property has been well exposed.

So beautifully written by the in-house stat guy at my office for the March Newsletter it was impossible to not quote it directly.

This entry was posted on Friday, March 13th, 2009 at 8:35 pm and is filed under real estate san francisco. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.