How To Make Sense of Market Data – Part 2

In yesterday’s post I addressed the “what” question in beginning to understand relevant market data for your home or home purchase. If you have not read that post you should do so before continuing here, as it is important that the “why” be the second piece of the puzzle.

I Have To Go See About a “Why”

Even after we answer the “what” question, if we don’t ask “why” then the market data we have chosen is not really telling us much. We have no idea if we are seeing a trend that will continue, or if there was an anomaly in the market. The “why” can not only help us understand what happened, but asking “why” can also help take us out of the past and into the future, though the future will always remain speculative. At the very least we can eliminate reasons for certain market activity to continue or to repeat. Or, we can determine that a continuation of market behavior should be expected if the “why” in question is expected to remain a factor.

As examples, here are some “why’s” from 2010: Why did inventory spike so high in the fall? Why did inventory reduce again so quickly? Why were prices in Rosslyn up 275% year over year (not exaggerating) in September?

These are real cases in Northern Virginia from 2010 market data. The “why” could be things like the tax credit expiring, people de-listing their homes a few months after the expiration. Or in the case of Rosslyn; a new ultra high end condo building, Turnberry Tower, began selling units after September 2009, which dramatically impacted year on year average prices in that zip code.

To The Bottom Line

In fairness these are big “why’s” and are not as common, but they serve to make a point. Depending on the “why”, a decline in average sales price, or an increase in average sales price may mean nothing at all. Or conversely, a seemingly flat market could be littered with warning signs or reasons to be hopeful. Without asking questions of the data they are reduced to mere numbers. At the end of the day even breaking data down to the zip-code is not going to give you an accurate picture of your home’s, or future home’s current performance. Your market could be “down” 10% not because values are down, but because fewer $1m + properties have sold recently. For all you know a house like yours may be up  in value.

The only true indicator of market value is a hyper-local comparison between closely related home sizes and styles.

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