Jeff Brown of “Behind the Curtain” recently posted a very interesting article on truth and accuracy in reporting . His example from Pravda, the official newspaper of the former Soviet Union, was sublime. My opinion is that there should not be a choice between truth and accuracy. Of course, I realize that both truth and accuracy can be subjective at times, but I think that we should always demand both.
The Charlottesville Area Association of REALTORS recently released the “2006 Third Quarter Market Report.” It bears the headline– “On Pace for Second Best Year for Local Real Estate.” Obviously, this caught my attention. One of the reasons it caught my attention was because I wanted to compare their analysis of 3Q06 to my analysis of 3Q06. Plus, this is my associaiton, and I thought that perhaps they had access to better statistics.What I found was woefully disappointing.
A few months back, after I started posting my own market statistics, I decided that I needed to wait a week or so after the end of a month in order to get more complete statistics. I usually wait about a week or so. I could wait longer, but I know that people want information as quickly as possible. From the statistics that CAAR reported regarding the third quarter of 2006, it would appear that they do not share my methodology. All of the numbers that they reported for total sales in 3Q06 were lower than the same statistics that I found. This had the effect of making the percentage changes that they reported actually look worse than what I reported. In the grand scheme of things, the difference in methodology isn’t exactly a big deal. The difference falls within a reasonable margin of error. The only reason that I do it the way I do it is to try and have the most accurate and complete statistics that I can reasonable have.
My biggest complaint with the CAAR market report is the way in which they reported the market inventory. For the first time, I shared the market inventory statistic with you. This statistic shows how long it would take to sell off the entire current inventory. What I reported to you previously was that, according to the MLS, the Charlottesville area currently has just over 12 months of inventory. Compare that with this quote, from the CAAR market report:
One of the major factors that affect the DOM statistic is inventory. If the inventory of homes for sale is low, then there are fewer properties for buyers to consider and properties sell more quickly. CAAR tracks the number of new listings that come on the market each quarter to help us monitor the inventory of available homes. There has been significant growth in the inventory over the last 12 months. As of early October, 2006, our database has 2,992 homes actively listed for sale. That is almost two times the 1,681 homes on the market this time last year. This is a rather amazing turnaround since inventory has been very low for the past five years or more.
Inventory levels have been increasing since late last year, but seem to be leveling off. The rule of thumb is that a healthy, balanced real estate market has a 5 month supply of homes available for sale. Less than that and it is a seller’s market, more than that and it is considered a buyer’s market. For the past several years, we have experienced a strong seller’s market and prices have gone up rapidly. Now, we have about 6.5 months of supply in inventory which indicates we are solidly in a buyer’s market. (emphasis added)
Obviously, this statistic caught my attention. It caught my attention so much that I sent an email to Dave Phillips, CEO of CAAR asking him about the statistic. I explained that I couldn’t find any such statistic in the MLS, and I wanted to know where this one was coming from. Obviously, if 6.5 months is more accurate, I don’t want to tell people that the number is 12 months.
He responded to me very promptly and let me know that he acheived this number by rounding the current inventory to 3000 homes, and dividing it by what he called a “typical October” of 450 sales. Ahhh, there’s the rub.
450 sales in October isn’t anything close to typical. I found this out by looking at the MLS statistical chart that accompanies the “months of inventory” statistic. According to the MLS, the most sales that have closed in any October is 347 sales in 2005 (the MLS only goes back as far as 2003). This number also covers every geographical area in the MLS. I coun’t tell if CAAR was doing the same thing in their report or if they were taking the inventory only from selected areas. Using Dave’s math, using 347 would yield 8.65 months of inventory. Much higher than 6.5 months. The statistic that I used only covered the inventory of specific areas (Albemarle, Charlottesville, Fluvanna, Greene, Nelson), and the MLS divides that inventory by the number of sales in the most recent month (September) in order to arrive at just over 12 months of inventory.
I went ahead and ran the same statistic for the entire MLS, and it said our current months of inventory is 12.19. That is nearly twice as long as the number reported by CAAR. While the CAAR statistic is neither truthful nor accurate, I am not saying that it was done intentionally to mislead anyone. I know that market reports from CAAR aren’t exactly comparable to what was published in Pravda during the Cold War. What happened here was obviously a mistake. Because it was a mistake, that means that it can be corrected both now and in the future.
My problem with the entire situation is that this type of statistical error is completely preventable. In order to publish the other statistics in the report, the MLS must have been used. Why wasn’t it used to publish the “months of inventory” statistic as well? Now, this erroneous statistic has gone out to all the REALTORS in the area, it is published on the CAAR website, and it has appeared in the local Real Estate Weekly. This is not a good thing.
I’m not sure exactly what CAAR can do about the error right now. Perhaps they can publish some sort of retraction and explanation, but I think that it needs to be addressed in this most recent report. In the future, I can only hope that those compiling the report will do so with the dilligence and commitment to accuracy and truth that such reporting demands.
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