Sales are up! Sales are down. Foreclosures are up. Foreclosures are down! Which statements are correct and which are wrong? They’re all correct, if you spin them the the right way. But two opposite statements can’t both be right, can they? Yes, if you choose the proper time frame in which to measure them.
A few days ago I was talking to a very excited Las Vegas real estate agent. He was pumped up because he had just come from his company’s weekly sales meeting where he was told that foreclosures had declined 20%. Surely, he reasoned, we’ve turned the corner and things are looking up. Just that same morning I had read a report that stated that the number of foreclosures in Las Vegas for January 2009 had increased by 48% from the previous January. Intrigued by such a large discrepancy, I decided to dig a little deeper. It turned out that he was right, but so was I. Huh? How could two seemingly opposite statistics both be correct?
Frame of Reference
While both statistics were correct, it was clearly a case of comparing apples to oranges. The statistics that I had seen compared January 2009 to January 2008. The agent’s numbers had compared January 2009 to December of 2008, a much shorter time frame. That certainly explains the discrepancy.
Statistics can be a measure of long-term, intermediate, or short-term trends. In real estate long-term would be a period of several years. The agent’s numbers were clearly short-term while mine were for an intermediate time period. This example clearly shows the danger you face when comparing different sets of numbers. Can you trust the comparison? In this case, no.
Long-term statistics can show how well you might do over a long period of time but they do little to show you what’s happening now. Short-term numbers may be of little value as well. Is a change from one month to the next a sign that the trend is changing or merely an aberration? There are so many variables that can change the numbers from one month to the next.
Using an intermediate time frame, many months or a year, may paint a more accurate picture. You have a better chance of exposing a short-term blip or avoiding a dead cat bounce. You also have a better feel for the market volatility that may be smoothed out by a view that is very long-term.
Clouding the Picture
Mark Twain once said, “there are lies, damn lies, and statistics.” The obvious point is that statistics can be manipulated in order to prove a point. Someone who makes a living selling real estate needs to believe that the market is going to do well. Therefore when the agent heard that particular number at his sales meeting he was only too happy to believe it.
When someone states something as a fact, take a look at his or her motivation. If they’re selling something they are much more likely to use facts and figures that highlight the value of their product or service. Why would they do otherwise? It doesn’t mean that they’re lying, it just means that they stating things as they see it. They probably believe it themselves. It’s human nature for someone to interpret things so that they conform to their point of view. It’s our job to see past that.
Spinning the Truth
I remember a teacher telling a story in high school. It involved a great race between the United States and the old Soviet Union. The Soviet news media reported the astonishing results of this great race. The Soviet Union had finished in second place while the United States had come in second to last, a show of Soviet superiority over the USA. While this report was totally accurate, what they didn’t say was that there were only two countries involved in this race. So the winner (USA) was also second to last and the loser (Soviet Union) was second. That is an excellent example of spinning the facts to show the results that you want.
Facts are stubborn, but statistics are more pliable. – Mark Twain