When Is a 20% Drop in Average Prices Really a 0% Drop in Average Prices?

By
Real Estate Agent with Atlanta Communities Real Estate Brokerage GREC #208281

Market stats can be deceiving.  

Every month the MLS in Atlanta comes out with average home sales prices for the Atlanta metro area.  They are useful in general terms but let me show you how easy it is to get an entirely incorrect picture of what's going on in the Atlanta market.

Fulton county is in the middle of metro Atlanta and is a very long county.  It could take you one hour to drive from the south side to the north side.  Houses in the north part of the county might cost on average $500,000 while houses in the south part of the county might cost on average $200,000.

Here's a hypothetical situation with simple numbers to make the math easier.

10 sales at $500,000
10 sales at $200,000
= ave. price of $350,000

Next year the prices stay the same, total number of transactions stay the same, but the relative number of transactions changes in the two areas.

5   sales at $500,000
15 sales at $200,000
= ave. price of $275,000

The MLS would report that the average price of a home in Fulton county dropped 21.4%, from $350,000 to $275,000 and total sales remained constant at 20.

That would be an amazing number that would be reported in the newspaper.  If you are an agent you might recommend that a seller reduce their price, when in fact the only thing that has happened is that more homes sold in south Fulton than north Fulton.

I've spent many hours this week creating market reports that drill down to smaller market areas around Atlanta.  I've created average house price charts for specific areas going back to 2002 which show both price and volume.  I will start posting them in the next few days.

It has been really eye opening.  There are sections around Atlanta that have had average prices drop around 50% in the past year while other areas have remained level.  In general, the volume of transactions in the decreasing markets is increasing and the volume in the steady markets is declining significantly.  This explains why so many agents are hurting all over.  Prices in north Fulton are staying even but there are half as many homes selling.  In south Fulton, prices have plummeted and the number of transactions has increased.  This will skew the area wide numbers in a similar fashion as my simple example.

The bottom line is real estate is local.  Use national numbers with caution and also metro wide numbers with caution.  Know the big picture but also know what's happening in your very local area.

Posted by
About the Author:  Tim Maitski has been a full time Realtor since 1999. He has sold several hundreds of homes in areas around metro Atlanta.  Tim started with RE/MAX Greater Atlanta and is now with Atlanta Communities Real Estate Brokerage.

Along with blogging on ActiveRain, he provides one of the best real estate websites in Atlanta at www.HomeAtlanta.com where he has market price charts of 37 areas around Atlanta with data going back over 10 years.  His online Property Tax Calculator allows you to compare property taxes in many counties and cities around the Atlanta area.  He provides the Atlanta MLS Power Search Tool that allows searches of homes using over 35 specific criteria.

A visit to Tim's  YouTube Channel will make you see why RealtyBizNews.com says that "Tim Maitski may just be America' most vocal real estate professional"

Tim is always looking to LinkIn with anyone who is interested in building their social network.

View Tim Maitski ●Atlanta Realtor●'s profile on LinkedIn

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  1. Richard Rector 05/28/2009 01:46 PM
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atlanta market stats

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Rainmaker
1,515,633
John Novak
Keller Williams Realty The Marketplace - Las Vegas, NV
Henderson, Las Vegas and Summerlin Real Estate

Nice work on this, Tim! To really get value out of statistics, it's important to understand what factors contributed to a change from one period to another. You've done a great job of finding 'the markets within the market.'

May 28, 2009 11:50 PM #14
Rainmaker
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Scott Guay
Coldwell Banker Residential Brokerage - Ocean City, MD
Associate Broker. Ocean City and Ocean Pines MD

You really need to know your local market to make since of the data you are looking at.  The smaller the area the better the results will be.

May 29, 2009 06:32 AM #15
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Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Realtor - Ann Arbor Real Estate

Tim, nice way to present it. I have to tell you it is a constant debate at our board. We are in the process of revamping how we do the stat's as in the past we have included all listings listed by Ann Arbor Area Board members, including listings we take outside our county.

With Washtenaw being a high selling county you list a few outside of it and bingo it looks like our average home prices have come way down. It is much better to just look at very hyper local stat's like you have been doing

It is so confusing to sellers and buyers. You want to low ball every home even in a area that is short on supply. And selling close to asking price.

May 29, 2009 06:40 AM #16
Rainmaker
449,731
Tim Maitski
Atlanta Communities Real Estate Brokerage - Atlanta, GA
The Agent Who Uses "Watermelon Tough" Sign Posts

I was wondering why so many comments on an old post.  I got featured!  Thanks to whoever.

The problem with most real estate statistics is taking the time to figure out where the numbers are coming from and what your potential error size could be.  Unfortunately, newspapers and most people just want headline numbers and really don't want to be bothered with the details.

I think that the best scenario might be a more localized Case-Shiller index.  They follow individual homes over time but they only cover 20 major cities.  It Atlanta, that's just too big and diverse of an area.

But even the Case-Shiller Index can be skewed by a high percentage of foreclosures.  If my particular home gets trashed after foreclosure and goes from $200,000 to $100,000, does that mean the values of my neighbors' homes have gone done 50%?  It just means that my home has been trashed and is only worth $100,0000 now.

May 29, 2009 07:02 AM #17
Rainmaker
216,371
Dave Edwards
Dave Edwards Realty - Greenville, SC

Good reminder to study our numbers carefully. Also if everything is compared to the best years (2005-2007ish) then of course there will be huge differences. Keep a good perspective.

May 29, 2009 07:25 AM #18
Rainmaker
341,459
Elizabeth Bolton
RE/MAX Destiny Real Estate Cambridge, MA - Cambridge, MA
Cambridge MA Realtor

Hi Tim ~ it is much more difficult to track changes in real estate values than most people acknowledge.  You need to track very similar properties over time and that's close to impossible. 

I thought of Case-Shiller as I was reading your post and then noticed you mentioned them in your comment.  I think that they put together their model because of this difficulty of tracking prices. I have a vague memory of reading an article about a study they did years ago.  They traced changes in property values in a neighborhood in Holland (if I'm remembering correctly) where they were able to compare like properties over a long period of time. We don't have that luxury typically - properties vary dramatically in terms of level of renovation, condition, site, location, etc etc etc. and we're almost never looking at the same unchanged property over time.

The other complicating factor is that sales figures are really tracking what people are spending - not the type of property they're gettng for the money.

Lots of food for thought in your post.

Liz

 

May 29, 2009 07:53 AM #19
Rainmaker
527,601
Jim Lee
RE/MAX By The Bay - Portsmouth, NH
Portsmouth NH Realtor, Portsmouth, NH

Good illustration Tim.

In the end the only number that counts to a seller is what's going on with my house.

NEARBY local data is helpful, national data less so.

May 29, 2009 08:14 AM #20
Rainmaker
163,804
Karen Singbeil - Shuswap
RE/MAX at Mara Lake, Personal Real Estate Corporation - Salmon Arm, BC
REALTOR - Shuswap Real Estate www.shuswap4sale.com

This a real good way to put it Tim. I see generalizations for stats that just don't jive for ever situation/area.

May 29, 2009 09:14 AM #21
Rainer
6,420
Realty Dot Com (Realty.com)
Realty.com - Charlotte, NC

Great post.

May 29, 2009 09:19 AM #22
Rainmaker
500,527
Brian Burke
Kenna Real Estate - Highlands Ranch, CO
Broker & Advising Expert-Denver Luxury Real Estate

Just today somebody asked us to for sales stats for a zip code. That zip code covers a lot. I asked what more specifically they are looking for. This is also why we do hyper local reports. ~Rita

May 29, 2009 09:52 AM #23
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Joe Pryor
The Virtual Real Estate Team - Oklahoma City, OK
REALTOR® - Oklahoma Investment Properties

The days on market stat drives me nuts too. it is often used to say look at this, the market is getting worse becasue DOM is 15 days higher. it could also be that the homes that extend the period arte overpriced with realtors afraid to ask for price drops. I like to focus on inventory, and real sales. 

May 29, 2009 11:41 AM #24
Rainmaker
645,228
Team Honeycutt
Allen Tate - Concord, NC

Many good points.  We are constantly reminded that you have to look at the local market.

May 29, 2009 04:30 PM #25
Rainer
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Steven Graham
epropertysites - Mountlake Terrace, WA
Coach, ePs, Director of Training

 what a great blog post i talk to our new members all the time and point out the same exact thing. i'm glad you decided to compile your stats on specific neighborhoods instead of alowing your readers and customers to be so easily misdirected. It takes a very savvy agent to notice this concern let alone address it in such a dynamic way. I only wish all of our new members would read your blog it would clearly display the benefits of writing your blogs and market reports on specific neighborhoods instead of for counties or cities as a whole. keep up all the great work tim!

May 29, 2009 04:46 PM #26
Rainer
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Dana Graham
Prudential California - Palos Verdes Peninsula, CA
DRE #00877973
I've been writing about this in LA for 6 months. The number of sale <$750K is up 28% while the number above $1.5 million is off 54%. This has led the media to breathlessly report stomach-churning average price "declines", when much of it is simply the imbalance between a very hot lower end of the market (subsidized rates) and a dead upper end (affluent sellers who can wait it out without reducing their prices). Dana Graham Palos Verdes, CA
May 29, 2009 06:08 PM #27
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Tim... excellent point. You made this statement... "The bottom line is real estate is local.  Use national numbers with caution and also metro wide numbers with caution.  Know the big picture but also know what's happening in your very local area."

This ticks me off, because we have been seeing this all over. Good example.. just the other day, someone stated that consumer is the highest it's been in 6 years. Okay, where did they get that number from?  Are things being construed?  Left out?  Just to make this sound good, to get the stock market in the right direction, to make rates rise, so we stay away from inflation?

Overall, just so much out there and it's seems to be very easy to make numbers work in your favor. I am speaking to plenty of people who are hurting.  Businesses are still closing,... etc, etc.

Okay, sorry, didn't mean to hijack your post.  But just that you bring up a good point and I am seeing this to often in the media also.

jeff belonger

May 29, 2009 10:32 PM #28
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Lane Bailey
Century 21 Results Realty - Suwanee, GA
Realtor & Car Guy

Real estate isn't local... it is hyper local.  Even ZIP codes are too big in many places.  There are so many things to take into account... dollar volume, prices strata, activity at specific price points...  It would take a fuzzy computer to deal with it.  I guess we call that fuzzy computer an experienced real estate agent. 

May 29, 2009 11:05 PM #29
Rainer
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Doreen McPherson
Homesmart ~ Scottsdale ~ Tempe - Tempe, AZ
Phoenix Arizona Real Estate ~

This is so true.  In the city of Tempe there are areas that may average 100,000 or so and a mile or two away there are million dollar homes.  Then, everything in between that range in the same zip code.  I agree with the idea of keeping it very local. 

May 30, 2009 01:21 AM #30
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Erica Ramus
Erica Ramus - Ramus Realty Group - Pottsville, PA - Pottsville, PA
MRE, Schuylkill County PA Real Estate

A good example of how you can bend the numbers to prove whatever you want them to prove!

May 30, 2009 08:10 AM #31
Rainer
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Dana Graham
Prudential California - Palos Verdes Peninsula, CA
DRE #00877973

Yup. I've been trying to get the media's attention on this for prox 18 mos.  In my market the # of lower end sales (Palos Verdes, CA, where low end is anything under $1 million) were up 28% a year ago, whereas the higher end (over $1.5 million) were down 58% 2009 vs 2008.  This led to (generally clueless) media to report stomach-churning drops in average (and median) prices, as you point out.

Today, because getting a high end loan is no longer analogous to a visit to your proctologist, the >$1.5 market is coming back (# of sales up 75% vs last year to date), which the lower end is holding steady so, as I predicated in last month's client newsletter, we will soon see reports of price increases simply due to the converse of what happened the last couple of years.  Doesn't mean any given house has gone up (or down), but it sure does mislead people, while giving the media what they want -- an attention-grabbing headline.

  

May 18, 2010 12:48 PM #33
Rainmaker
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Tim Maitski
Atlanta Communities Real Estate Brokerage - Atlanta, GA
The Agent Who Uses "Watermelon Tough" Sign Posts

Dana,  You're right.  They're just looking for a headline.  Explaining something like this is just too much work.  And people also just want a simple number they can use in calculations.

 

May 18, 2010 03:46 PM #34
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