The graph for average sqft price shows a huge short term spike in 2011. What accounts for that? Just curious.

Asked by tori, Carlsbad, CA Thu Jun 27, 2013

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Kim Sinclair, Agent, Carlsbad, CA
Thu Jun 27, 2013
BEST ANSWER
Hi Tori,

I'm looking at the graph you're asking about. The huge spike they are reporting looks like it's roughly between March-June of 2011. On that graph, the spike shows when "All Properties" are selected. There is also an option to unselect "All Properties" and look at the data for one bedrooms, two bedrooms, three bedrooms, and four bedrooms. Looking at the data for the homes separately by number of bedrooms, there is some movement but no huge spikes. I don't know the methodology or have access to their data tables, but my guess is that it is due to one of two things:

1) The spike may reflect something as simple as a data entry error.
2) The spike may reflect one or more sales of exceptionally expensive properties that skew the data points. Data can look skewed that way if there are some "outlier" properties that are exceptionally expensive, especially when there are few other sales, and in mid-2011 our market was depressed with few sales. The correct way to show such data is to either throw out the outlier properties so they do not disproportionately skew the results, or to use median prices instead of average prices. Averages will add up the total prices of the homes sold, divide by the number of homes sold to achieve an average price. In the same way the average square footage will be calculated by adding up the square footage of all the homes and dividing by the number of homes. The average price will then be divided by the average square footage. So, if you had 100 homes that sold for around $500,000 the average price would be $500,000. But if you included one home that sold for $15,000,000, that one home would completely skew the average price, giving an inaccurate picture of the real average price of homes.

Reporting median prices would to some extent correct for that bias, because you would be calculating the point at which half the homes sold at a lower price and half the home sold at a higher price.

I think that it's highly likely that one of these two things explains the spike.

Let me know if you have any additional questions!

Kim Sinclair
REALTOR
Real Living Lifestyles, CA DRE #01435354
300 Carlsbad Village Drive, Suite 224
Carlsbad, CA 92008

KimSinclair.re@gmail.com
Call or text me at: 760-845-4365
eFax: 858-432-5019
1 vote
Tony Cannon, Agent, Carlsbad, CA
Fri Jun 28, 2013
Seems the data is off by a factor of 10 during that 2011 time period. My guess is Trulia did a software update during that time which had a bug and it wasn't until they updated their software again a couple months later with the bug fix that the data was corrected. No real market activity could account for that kind of change.
0 votes
Kim Sinclair, Agent, Carlsbad, CA
Thu Jun 27, 2013
Hi guys,

If you look at the graph Tori is asking about, it is not explained by increased demand and decreased inventory. The graph she refers to shows a spike in mid 2011 that jumps from an average of $242 per square foot to $2,671 per square foot. This is most likely explained by data error or outlier properties that grossly skew the averages. When dealing with outlier properties, averages yield more inaccurate results than medians, although the correct methodology would be to exclude the outliers.

Kim Sinclair
REALTOR
Real Living Lifestyles, CA DRE #01435354
300 Carlsbad Village Drive, Suite 224
Carlsbad, CA 92008

KimSinclair.re@gmail.com
Call or text me at: 760-845-4365
eFax: 858-432-5019
0 votes
Barbara Whis…, Agent, Carlsbad, CA
Thu Jun 27, 2013
Basically, Low Inventory + High Demand = Higher prices. If interest rates continue to rise, we may see a different kind of graph.
0 votes
Gary Hofmann, Agent, Carlsbad, CA
Thu Jun 27, 2013
Hi Tori...very good question. Unfortunately, the RE price changes we see in the press usually reflects "median" price, not "average" price, so in the short term the apparent price can be very distorted if the sales reflect only the median price (the mid-point between the highest and lowest priced sale) and not the average price. hopefully that helps. Please feel free to contact me if you have any other questions.

Gary Hofmann, Realtor, Carlsbad, CA
0 votes
Jeffrey L. H…, , Carlsbad, CA
Thu Jun 27, 2013
Hi Tori. I am not sure which graph you are talking about, but many of the statistics or graphs are faulted these days. Thogh there has been a stair stepped increase in prices for a while in the North San Diego market, the REO and Short Sale market has helped fog the real market as well. The example being a house that sells at a discount because of condition and difficulty of a short sale might have taken 6 months to close with the sales price set at the time of the original offer. Then the buyer spends 50 thousand in rehab and upgrades on the property. When it goes on the market 4 months after closing (10 months from sale pricing.) it goes on the market for 125 thousand more than it sold for last time. The reports don't take into account the 50k in rehab or the discount on the original sale that might place the real increase to 40 thousand over the course of a year, but rather shows a raw number increase of 125k in six months.

Does that help?
Feel free to contact me directly if you want to discuss this or any other subject in more depth.
0 votes
Dan Tabit, Agent, Issaquah, WA
Thu Jun 27, 2013
Tori,
I can't see what graph you are referring to, but I can tell you several things can impact this. Larger homes sell for less per square foot than smaller ones. If a new development opened up and was larger or smaller homes, that could impact this. If a group of homes on larger or smaller lots sold, this could impact this.
Here's what you should know, price per square foot is one factor, but not the best factor when determining value. Only when comparing homes of similar age, size, style and location does this become somewhat useful.
0 votes
Hi Dan:
Thank you for your answer. Actually, I failed to include that I was looking at ave sqft prices locally in Carlsbad, CA. Scroll down and take a look at this graph. http://www.trulia.com/real_estate/Carlsbad-California/market-trends/
Your answer sounds feasible for WA; but I don't think it could have been a new development because we have no land left on which to build. Also, this is a super dramatic high spike. Any other ideas?
Flag Thu Jun 27, 2013
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