“Facts are stubborn things, but statistics are pliable.”
The above quote is from the American writer, humorist, publisher and lecturer, Mark Twain.
While written perhaps in jest, it does provide a word of warning about depending too much on statistical analysis.
Here are just three examples of when statistics from “authoritative sources” should be taken with a grain of salt.
The gross domestic product of a city, region or state is used as a key indicator of the economic well-being of a market. Statistically speaking, GDP is the monetary measure of the market value of all final goods and services produced over a certain period of time.
But GDP doesn’t include all goods and services.
Many real estate investors look at a market’s GDP to measure the strength of the market unaware that the majority of home sales are excluded from the GDP calculation.
In order to avoid double counting, property resales are excluded from GDP measures. According to Reuters, property resales – the used home market – make up about 90% of the country’s housing market sales.
The problem with this is that while new home sales prices continue to rise, resale home prices can simultaneously decline. The result is that GDP is inflated while a housing market slowdown is hidden, since home sales volume occurs about two years before it is measured as GDP.
This is exactly what happened pre-2008 before the housing market crashed.
The Bureau of Labor Statistics compiles data and publishes reports such as the CPI, jobs report, employment rate, and labor productivity. Unfortunately, the end results are adjusted based on certain assumptions such as births and deaths, and seasonal employment.
Let’s look at the most recent jobs report released June 1st as an example. According to the BLS, 223,000 jobs were created in May 2018, resulting in an unemployment rate of 3.8%.
But these new jobs in May include an upward adjustment by the BLS of 215,000. In fact, since September 2017 the BLS claims that 1.15 million new jobs have been created, while at the same time over 1.4 million potentially employable people have left the workforce. This means they are no longer considered part of the employment market, which in turn inflates the rate of employment, making the economy look better than it really is.
Online Real Estate Listing Sites
The research team at Reis recently published a white paper showing how broker-fed websites can’t always be a reliable source for analyzing market statistics such as net absorption, vacancy rates, rental trends or even availability of property.
That’s due to several reasons:
- Broker-fed sites are not comprehensive since the majority of listings are from brokers paying to market their listings.
- They’re inconsistent because the same property is frequently listed multiple times while at the same time not all available or vacant property is listed.
- Broker-fed listing websites are not curated, meaning that nobody double checks the accuracy of the data being input.
While broker-fed real estate listing websites can be a potential tool for analysis, it’s always best to use a professional who understands the market and knows how to read between the lines.