| Written by Michael Clarkson This was written to one of the major stations in Denver, but is appropriately directed to the Denver media at-large. Perhaps, it could be directed to media in YOUR town, too. I have a serious issue with the incomprehensively poor way that the media in general reports information about the local real estate market.
I am a Realtor®. I am also an investor. So, I wanted to let you know where I sit, before I tell you where I stand. However, I am also an MBA from Regis University and have been a Global Sales Director in the Telecommunications field - managing cross-functional and international sales commitments up to $65m per year. http://www.milehighhomehunter.com/staff_bio_318515.html . So, I am not your typical Realtor®. However, what I share here, I believe, represents the supermajority's view in the Denver real estate broker's community.
So, that I can provide some context that I accuse you of lacking, permit me to quote Henri Poincare: Science [substitute the word "reporting"] is built up of facts, as a house is with stones. But a collection of facts is no more a science [substitute the word "reporting"] than a heap of stones is a house.
The "cold read" of the MetroList numbers that you did is little more informative than reading numbers out of the phone book, equally without context. Your recital of empty facts is no more reporting than me rattling off listing addresses to my clients and claiming to be a Realtor®.
Now, I realize that just because real estate is my chosen career, that doesn't mean that real estate should be the focus of your reporting. However, because reporting is your chosen career, accurate, contextual reporting should matter to you.
Frankly, my peers and I spend a lot of our day correcting your [and others'] reports with genuinely frightened clients. After all, the home represents most folks' single largest investment and, lately, the source of their deepest fears. Lack of context - or just plain bad reporting - only reinforces those fears, capitalizing on those fears for ratings, and transforming them into equally baseless phobias in clients' minds.
Now, I realize you are doing a 15-second story in the context of an overall business update. However, just a few more minutes of research - and about 15-seconds more context - shows an entirely different story than was reported.
Your story
If I recall correctly, on January 8th, the average listener heard your station stating, "MetroList said that average home sales dropped xx%." I believe you quoted the Single Family Residential decrease of 13.93% to an average sale price of $225,257. Factually true. Equally accurate as reading the aforementioned phone numbers in the phone book.
However, the average person who hears that thinks that means EVERY HOME dropped 13.93%, not that the "price dropped for only those homes transacted". I will share I believe I heard your reporter say "for homes that transacted". However, for most listeners, that "for homes that transacted" is glossed over in favor of the 13.93% price drop. I state that as immediately thereafter the standard, post-segment "repartee" reinforced the price drop as this is just "another dismal signal in the failing economy".
Sure, there are challenges in the current economy. However, most challenges rarely relate to fundamentals and usually are based on excessive fear or excessive greed, and lack the benefit of hindsight to provide perspective as to which those challenges relate. Permit me to share why I believe - and I believe many of my peers believe - that the fundamentals are largely sound and not "just another sign of a failing economy".
Where your story failed in its accuracy
Now, basic business school classes would state that price changes due to the following:
· Shift in supply and demand OR
· Product (in this case, homes) mix shifting.
Now, I will concede the MLS is not user friendly - few MLS's are, though ours is one of the better ones - however, the data turns into information (and, thus, NEWS) close to the surface with a few more minutes' effort.
· Yes, total listings were at their lowest point in the 4 years I track (I think you quoted 6 years, which sounded accurate) at 19,600. However, that is relevant because that is down 20%. That was also accurately reported. (See chart)
Based on information from MetroList, Inc. for period December 2008.
Note: This representation is based in whole or in part on content supplied by MetroList, Inc. MetroList, Inc. does not guarantee nor is in any way responsible for its accuracy.
Content maintained by MetroList, Inc. may not reflect all real estate activity in the market.
However, that's not the meat of the story. That's just an easy statistic to toss out.
The meat of the story is that a months of inventory have been dropping - consistent with a market bottom - in Denver since about September/October of 2007. Here's why:
-
Against that 20% fewer listings, sales, usually low in December, were the 2nd highest in the past 4 years at 3,234 units - meaning a contraction of supply vis a vis static demand. So, there is a supply constriction in the Denver market.
o That's additionally important because - though not appreciably higher than last year, given the Dow is off 40% and credit is allegedly "constricted" (though the St. Louis Fed's numbers would indicate credit is at an all-time-high for ALL OF HUMAN HISTORY) - Denver had the 2nd highest sales close in December 2008 in the past 4 years.
o Despite job losses. Despite the reporting of lack of credit availability. Denver STILL had the 2nd highest number of sales in the past 4 Decembers. (See chart below)
Based on information from MetroList, Inc. for period December 2008.
Note: This representation is based in whole or in part on content supplied by MetroList, Inc. MetroList, Inc. does not guarantee nor is in any way responsible for its accuracy.
Content maintained by MetroList, Inc. may not reflect all real estate activity in the market. Those numbers translate into a Months of Inventory of 6.06 months. 6 months is a "balanced market". (See chart below) And, you will see, the best December Denver (in terms of months of inventory) has had in the past 4 years.  Based on information from MetroList, Inc. for period December 2008.
Note: This representation is based in whole or in part on content supplied by MetroList, Inc. MetroList, Inc. does not guarantee nor is in any way responsible for its accuracy.
Content maintained by MetroList, Inc. may not reflect all real estate activity in the market. - The national market (for November, as December numbers won't come out until about January 23, 2009), continues to be at 11.2 Months of inventory. So, we are doing 50% less inventory here than the national market. Now, THAT's a story.
o When those numbers are seasonalized - that is, the average sales for the past 12 months is used - we are at a 4.92 Months of Inventory (based on average volume). Denver's market transacts about 59% in April - September and 41% from October - March. So, seasonalizing the numbers is appropriate. 
Based on information from MetroList, Inc. for period December 2008.
Note: This representation is based in whole or in part on content supplied by MetroList, Inc. MetroList, Inc. does not guarantee nor is in any way responsible for its accuracy.
Content maintained by MetroList, Inc. may not reflect all real estate activity in the market Now, THAT is an accurate story: Static demand with a dropping supply of listing inventory.
There's more...
Now, it was also reported that the average home price is down 13.93%. True, but NOT REALLY.
Denver now has two distinct markets in play (I won't bore you with that detail, as it's unrelated to your reporting): - The sub-$300k market - which is about 3.5 months of inventory (seasonalized)
- The over-$300k market - which is about 8.8 months of inventory (seasonalized)
- In short, for those earning over $100k per year (based on average qualifications) it's a buyers' market; for those below $100k per year, it's a sellers' market. About 12% of the Denver populace earns over $100k per year, thus, the divergent markets occurring within the larger Denver market.
As noted earlier, two things create average unit price changes in free markets: 1) Supply-Demand imbalance or 2) Product Mix.
Prices are down, because lower priced homes are selling as a higher percentage of the market. Just using the median price of $196k (or $200k for round numbers), here's what is seen:
· 2007 - 42.6% of the Single Family Homes sold at $200k or less.
· 2008 - 52.9% of the Single Family Homes sold at $200k or less.
In terms of total sold volume - again Single Family Residential Only - here's what happened:
· 2007 - 1040 Single Family Homes sold at $200k or less.
· 2008 - 1244 Single Family Homes sold at $200k or less.
· That's a 19.6% increase in sales below $200k, while overall sales were equal to prior years (though technically slightly higher).
So, yes, of course, the average will be pulled down as more activity relative to the whole market transacts below the average, as has happened. After all, the average can only go DOWN a fixed amount - down to zero, unless it's zero PLUS a rebate - while potentially going infinitely higher.
In short, the story is or should have been: - Supply of listings down 20%; demand static, consistent with historical levels (despite the "meltdown")
- Activity below the median (or, alternatively, the average) is UP 20% in terms of total sales, dragging the average (and the median) price down. It's not that prices are down on EVERY HOME, it's that the activity (number of units sold) below the average price is UP and up substantially.
- Now, barring another financial meltdown, that situation translates, in most business schools, as the classical formation of a "market bottom".
- Nobody knows the future, but based on the data above, the story is not a soft real estate market in the latest MetroList numbers, it's the opposite.
- I mean, if your ratings went up 20% that would make you happy. Right? If they were outside your target demographic, you might care less, but I bet you would tell advertisers that ratings are up - justifiably so. Well, our market too - like these hypothetical ratings - is doing better and should be acknowledged as such.
I just wish you all take the additional 5 minutes to vet out what these numbers mean. To be direct, in my opinion, you got it comprehensively wrong. Worse yet, you are instilling irrational pessimism into the market, where it is - in my opinion, based on the facts above - unfounded.
I am not asking you to do my job. I am just asking you to do yours. That 5 minutes is the difference between data and information, and the difference between news and misinformation. Kindly submitted for your thoughtful consideration,
Michael Clarkson, GRI, MBA Broker/Owner Mile High Home Hunter Realty
"A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty." - Churchill Click Here To See My New Real Estate Video News Channel! |
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