Rest easy. Alabama home sales have dropped, but not on Lake Martin. Or should you be alarmed that the average sales price of a home in Lake Martin plummeted 15% in one month? Which is it?
On March 12, 2007, Patrick McCreless wrote an article in the Alex City Outlook entitled, “Home sales still strong on Lake Martin.” The information he quoted was from the Alabama Real Estate Research and Education Center, which (I assume) got its data from our Lake Martin Area Multiple Listings Service. While I do not disagree with any of the data in the article, I do think it presents an interesting look at analyzing statistics of our market.
Two main stats stuck out to me:
1. Statewide, Alabama saw the number of homes sold drop 20.4% from December 06 to January 07. The Lake Martin Area increased its number sold to 29 from 25 in December, for a gain of 16%. Hence the analysis that we were unaffected by the State’s slump. I agree.
2. At the end of the article, it sneaks in that the Lake Martin Area’s average home sales price dropped in January to $181,310 from $213,716 in December. Again, agreed. But – couldn’t the headline easily have been “Lake Martin Home Prices Drop 15% in One Month?”
This same article could be used both by doomsdayers to prove evidence of a dreaded “bubble” in our market and by bullish folk saying that the market is still hot. The seeming contradiction in interpreting the data is a classic case of trying to draw too many conclusions from too small a sample. Any professor of Statistics will tell you that the smaller the sample, the greater margin of error. In other words, if you poll the five people you play poker with on the question of who will be the next President, the chances of them being wrong are a lot bigger than if you selected five million registered voters, randomly distributed across geographic, economic, and political lines.
The point is - be careful when you try to interpret the data of a market like Lake Martin. We have a broad mixture of 
types of properties – on / off the water, single / multi family, modern / rural, etc. – that are spread across a relatively small number of listings. One big sale here or there can really affect the numbers, so watch out. Try to gather as much information as you can. Talk to many people in the business. Are you confused about what your property is worth, or what you should pay for a place on the Lake? I am always willing to give my honest two cents and would be glad to help! The only way I know to do it to tell it like I see it. See the “comments” section on this post for my email to Patrick McCreless where I provide an opinion on the contradictory stats.
Here is the text from my email to Patrick McCreless of the Alex City Outlook:
Patrick - I enjoyed your article. I would suggest, however, that one must carefully interpret any statistics, especially in our real estate market. For instance, the “drop” in average home prices in January vs. December I think is more related to the % of waterfront homes sold in each month. In January 2007 (by my count) there were only 5 out of 29 (or 17%) homes sold that were waterfront residences in the Lake Martin Area. In December 2006 there were 10 out of 25 (40%). Since our MLS includes houses and land sold off of Lake Martin, and since waterfront homes are priced exponentially higher than similar non-waterfront homes, I think the lower average sold price in January is directly related to this difference. It also shows me that interpreting analysis of market data in a small market like ours is tricky. We have so few transactions as compared to the bigger markets like Birmingham, Montgomery, or Mobile. In our low transaction market, five homes sold or not sold can swing the market averages dramatically.
Please feel free to read further on my real estate blog - http://www.LakeMartinVoice.com.
Thanks,
John
Interesting post. I think over-analyzing the data in any real estate market, big or small, is not a smart move, and when there’s so much speculation about a “housing bubble”, the slightest shift in data can send you over the edge.
Amen Erin! Lake Martin property owners would do well to forgo emotion, check the numbers, and then go with it. Watch out for paralysis by analysis.
[…] 2. Look at the numbers. As I have said before, you have to be careful when interpreting statistics in our market. It is relatively small in transaction number (when comparing to large cities like Atlanta). But, to make a market opinion, you must look at market statistics, so I try to consider a year of data at a time. The goal is to take emotion - and agenda - out of the equation. Just the facts, ma’am. […]
[…] Look at the numbers. As I have said before, you have to be careful when interpreting statistics in our market. It is relatively small in […]