March 1, 2006
REALTOR© Hoisted Upon His Own Petard
Yesterday SocketSite caught a local Realtor, and popular blogger, using statistics from the MLS to prove that demand is outstripping supply in the San Francisco housing market (and to “back up what is usually [his] gut-feeling about the San Francisco housing market”).
While we applaud the Realtor for attempting to use analytic (versus anecdotal) information to prove his point, unfortunately we must report that his analysis was flawed, and that the “hard data” he provides actually suggests the exact opposite trend: over the past couple of weeks, "supply" in San Francisco has increased faster than "demand"...
In the Realtor’s original post, he highlights the following statistics for the week ending 2/20/06: 173 'New Listings', 229 'In Contract', 105 'Closed Escrow', 485 'On Tour', 1029 'All Active'; and for the week ending 2/27/06: 180 'New Listings', 258 'In Contract', 123 'Closed Escrow', 505 'On Tour', 1055 'All Active'.
Based on these statistics, the Realtor then draws the following conclusions (he has since removed the first paragraph and edited the second):
“In my world, what this says is that there is new inventory coming on the market, but not enough to satisfy the demands of the buyers. Last week there were 56 more units put into contract than what came on the market. This week that number jumped up to 78. If I were a sensational journalist, I would run a BOLD headline stating that we're almost out of housing inventory, with the ratified differential increasing by a whopping 40%!
But that's not really the point. It is, however, really important to note that there are more properties selling than are coming on the market in the past two weeks. February 2005 was probably the hottest month in the history of San Francisco real estate, so I was expecting this to happen again in 2006. Will it continue? Perhaps not to this extent. But it's nice to know [sic] see some hard data to back up my predictions.”
The Realtor’s conclusions are based on the assumption that 258 new contracts were written last week, an assumption that seemed wrong (call it a “gut-feeling”). As such, we requested that the Realtor confirm his report of 258 new contracts last week (and 229 the week before). The Realtor responded by providing the following update and clarification:
“…there were 258 properties listed as having been changed to 'Active Contingent' or 'Pending' in the past seven days…I'm seeing that 120 properties changed from Active to Active Contingent and 166 were changed to Pending (which could have been a change from Active or from Active Contingent -- which skews the data a bit).”
“Meanwhile, the new listings are actually 'new' listings, not properties that are back on the market. There is a different search criteria for BOM properties (which I have also just added) [editor’s note: 35 properties last week]. And sold listings are just that, sold & closed escrow (but last week were Pending).”
(For background, an MLS listing typically takes the following path: from ‘Active’ (no accepted offer), to ‘Active Contingent’ (accepted offer with a contingency in place – e.g. inspection), to ‘Pending’ (all contingencies removed/waived), and finally to ‘Ratified’ (sold). And the length of time it take a property to move from Active Contingent to Ratified is variable, but usually ranges from 30 to 60 days.)
The Realtor’s clarification suggests that while 215 listings were added to last weeks 'supply' (180 New + 35 BOM = 215), only 120 were newly in 'demand' (i.e. moved from Active to Active Contingent). (Granted, a small percentage of listings might have moved directly from Active to Pending, but that is usually an exception rather than the rule.) All this is to say that the “hard data” presented by the Realtor actually suggests that housing ‘supply’ outpaced ‘demand’ in San Francisco by up to 95 units last week (a far cry from the Realtor’s initially reported shortfall of 78 units).
SocketSite presented our calculations to the Realtor to double-check our analysis. In response, the Realtor posted the following:
“I never intended for this blog to be a full-time job, so I've decided not to continue to post or defend these statistics. The MLS does not offer a definitive way to see how many listings went from Active to Ratified, and I don't have the time or energy to individually analyze the Pending properties. If I find an argument-proof way to provide people with details on the market, I will do so. In the interim, I will only apologize to those that might have found the stats helpful.
I still stand by my opinion as a full-time, working real estate agent that the market is moving quickly in many neighborhoods and property types, while still offering opportunities for those that are willing to put in some extra work to find them.
Even in February and August of last year you could have easily found properties that were sitting on the market, and made an argument that the market was tanking, but we all know in hindsight that was not the case.”
We’d actually ask the Realtor to continue to post the raw MLS statistics (despite the fact that they might conflict with his “gut-feeling” about the market) as we, and we’re sure others, find them valuable. And we agree, there will always great investment opportunities for those who put in the work to find them (regardless of the market). But folks, anecdotal evidence shouldn’t be a substitute for analytics when making an investment.
We’d like to believe that if a stock broker suggested buying a stock based on his “gut-feeling” that demand was greater than supply, you might ask for (and analyze) some “hard data” before making a trade. And call us crazy, but in the case of a house, we’d like to believe that you might actually ask (and analyze) twice.
∙ Some Stats from the MLS... [SFHomeBlog]
First Published: March 1, 2006 2:46 AM