Vancouver Real Estate - Heresy UnPlugged
Posted September 11th, 2008 in Real Estate, Sharing the Experience
So It Begins
In my Higher Price Heresy post, I alluded to the issue of Academic Ideals which exude the esteem of lofty, higher ground. They are the above reproach entities from which we expect undeniable truths delivered as conclusions founded on accurate research.
Casting Doubt
Swift has been the web community to deliver opinions on Dr. Somerville’s discussion paper entitled “Are Canadian Housing Markets Overpriced”.
In particular, one respected opinion pointedly condemns Dr. Somerville’s discussion paper. That opinion strongly infers that a flaw exists in his conclusions as they are based on the “incorrect use” of certain Royal Lepage statistics.
Lightening Rods
Norm Fisher, a Royal Lepage Agent in Saskatoon wrote in his Saskatoon Real Estate Resource blog comments that:
What’s sad about this study is the fact that Royal LePage House Price Survey numbers have been used incorrectly once again. The authors place the price of real estate in Regina at $347,100 and state that it’s overpriced by $87,000. I’m sure I don’t need to argue that $347,100 is not an appropriate figure to use for Regina. $347,100 - $87,000 = $260,100. Actual average selling price in Regina over Q2 = $250,784.
Mr. Fisher continues with:
I stopped reading when I saw the RLP House Price Survey was the “source” as I know that it cannot be used in this way. As I’ve said before, it’s mathematically impossible to produce a “house price” for any city using the limited neighbourhood data that is collected for the survey.
Do We Believe
If one believes Mr. Fisher’s claim, then does it pre-suppose that the esteemed professor’s discussion may be whimsical fallacy thereby leaving the presumption of accuracy with Mr. Fisher, a Royal Lepage agent.
Are we then to assume that the projections being made by Dr. Somerville fall within his disclaimer where he proclaims that “As with all economic analysis, this approach demands a large number of assumptions and conditions.”
Who Is Right
Mr. Fisher clearly makes his statement without assumptions and conditions. It appears that his statement is fact based on intimate knowledge of the survey in question and referred to by Dr. Somerville as the “source” of his information. Be that correct, one must with due respect to Dr. Somerville, assume that his conclusions may be suspect. It appears that the information referred to by him as the “source” of his study, may not have been verified by those intimate with the data as Fisher’s argument implies. We are left to wonder if Somerville did intimately verify his “source” and if not, is this the procedural research flaw that places the entire paper into question.
The Problem
Discussion papers and opinions, when published by an authorities at any level, take on a life of their own. They become focal points of strategies, decisions, and action. While the scale of authority attributes importance and reliability, they must remain subject to inquiry. As we might imply from Mr. Fisher’s proposition, the possibility for said authority to be incorrect exists. The damage rests in the reliance on incorrect conclusions, which can generate a potential for great harm to any number of people in ways often incalculable.
Your reliance on the sources of the information presented should compel you to question the validity of the statement that the Canadian Housing Markets are Overpriced.
What It Means
In today’s market place question all that you read regardless of the source. Weigh opinions carefully. Before you alter your home sale pricing strategy, ask your Realtor why and on what information are they basing their recommendation. Then try to make the right decision.
Got a Vancouver Real Estate question? Always happy to answer it. Call or send me an email or twitter me @yattermatters.
Larry
*Statistics Courtesy REBGV. While believe to be accurate they are not guaranteed. **Numbers provided may vary as they are dynamically posted by the REBGV.
Dr. Somerville’s Discussion: Are Canadian Housing Markets Overpriced
Larry,
I’m a little disappointed. Why would you dedicate an entire blog post to the comments of one individual who clearly hasn’t read the report?
The economists don’t “place the price of real estate in Regina at $347,100″. They studied two specific types of houses in specific neighbourhoods and compared housing costs to renting costs. Any rolled up average is for this sample data alone. The fact that excecutive 2-storey homes are priced well above the average in Regina explains why their numbers for Regina are skewed toward the high end.
But this doesn’t mean the report is flawed. It’s the local neighbourhood data used in the report that makes it so accurate.
The economists could very easily have sourced more accurate total average prices for each of the cities, but this wouldn’t have helped them. When using the owner cost of capital approach we can’t simply take the average price for a home in Toronto and the average price for a rental unit in the city to see if prices are balanced. We need to look at data more locally
The purpose of the report wasn’t to “produce a ‘house price’ for any city using the limited neighbourhood data that is collected for the survey”
To even suggest that shows that the commenter didn’t invest the time to actually read the report.
The report uses data for certain neighbourhoods and certain types of housing to see if prices are balanced using the owner cost of capital approach. The economists then assume that what holds true for the houses and neighbourhoods studied is true for all houses and neighbourhoods in the city.
There may very well be problems with that assumption, or any one of the other assumptions the authors highlighted in their report.
But the alleged flaws and “incorrect use” you dedicated an entire blog post to, are not flaws at all.
Larry,
John makes some excellent points and I concede that my comment was both flippant and uninformed. I made “certain assumptions” which, in hindsight, may well be incorrect.
Assuming that the researchers accurately identified potential rents for the specific types and locations of properties that they examined, the study may carry more weight than I was prepared to give it on first glance.
My frustration results from the “weighted averages” which are often gleaned from Royal LePage House Price Survey (RLPHPS), and almost as often result in a misunderstanding of what’s really occurring in Canada’s real estate markets. The RLPHPS examines specific geographic areas of each city it reports on. Those areas are selected by the local contributor. As I understand the process, some contributors may break their entire market area into quadrants, while others select smaller pockets throughout their market. The data is valuable in identifying price trends within those areas, and it’s also useful in helping buyers identify areas which are affordable for them, but it can create some issues when it comes to weighted averages. As I said before, one cannot reliably arrive at a weighted average for an particular market unless every area of the market is included in the report. It appears that the researchers in this particular study have taken greater care in using the data from RLPHPS than I am accustomed to seeing in the media. I can clearly see that I need to take greater care when I open my big trap in the future.
@ John,
Don’t be disappointed. I was just looking for some truths. Sometimes it’s only one thumb that holds the water back in the dam. I have great respect for Norm as a man and his opinion. That he would counter the proposition made asking the question worthwhile.
@ Norm,
Shouting is a good thing. It kept the three of us awake.
To both of you, my thanks and I’m sure the thanks of any consumer reading who was seeking clarity.
I think we’ve all opened our own big traps a little too quickly without giving an issue the thought that it may deserve. I think bloggers in particular are more prone to this given the fact that we are posting and commenting on issues rather quickly.
I haven’t followed Norm’s blog too closely up until now, but I have to agree with you Larry, after reading his comment above, he has certainly earned my respect as a blogger.