Handling statistics

Readers, beware of numbers and people who sling them. Many people are uncomfortable with numbers and statistics. I would like to guide you. In the next few months, I will be writing about the “numbers decisions” that you may make in the process of buying and selling. Today, I write about real estate economic news.
Those of you who have followed me from the beginning of my blogging at Boston.com know that my father taught me how to understand the use of numbers found in newspaper articles.
I saved this article from the Sunday Boston Globe, Trey Skehan that explained the use (and misuse) of averages, medians and means in discussions of income. Thank you, Trey Skehan explaining to readers how numbers lie when readers don’t know how to read them.
If we are going to discuss the economy on this blog, IMHO we should be talking about economic illiteracy, jobs and income, community economic stability, as well as housing prices. Those who don’t understand the meaning of the numbers can be easily manipulated. Not only can economists and journalists confuse people with numbers, so can crooked mortgage originators, real estate agents, and companies who give credit to young (and not so young) adults.
Economic “news” is frequently poorly written for those who do not read the whole article. Since many people skim articles they read, it is easy to misunderstand the entire article. I also find that the title can actually contradict the data.
I frequently get questions from my clients about an article about “real estate going down,” where my clients were unaware that the article was stating volume, not price. When you look at most real estate articles in the press, the reporting frequently mixes sales volume and sales price. For example,  The stats behind this AP article are about sales volume (number of pending sales) not price. However, if you think they were writing about price, you are totally off the mark.
Once you know that the topic is volume, there are other questions to ask. When sales volume goes up or down, it indicates a problem with either the amount of supply or demand. Whether volume goes up or down is not a predictor of price unless you understand why it is changing. If there is decreased demand, it is a buyer’s market for those in the small demand pool. If there is decreased inventory, it is a seller’s market for those sellers who have desirable properties to sell in the small supply pool. Both these conditions lead to fewer overall sales. Get it? One will lead to falling prices, the other to rising prices.
Knowing the change in sales volume without knowing the on-the-ground market conditions is predictive of nothing.

Leave a Reply