Why Home Price Numbers Don’t Add Up
The price of a typical home in Los Angeles is $201,578. Or $198,655. Or, depending on who’s doing the figuring, anywhere from $189,545 to $514,460.
A typical Orange County home sells for $237,409. Or $225,335. Or is it $220,000?
The disparity stems, in large part, from the fact that more than a dozen different trade groups and private companies publish home price figures on a regular basis.
Each tracks prices differently, and each of the economists and researchers who calculate the numbers is eager to explain why his or her estimate is the most reliable--and those of other statisticians are not.
The disparities cast doubt on much of the talk about how “my home has gone up $100,000 since I bought it three years ago” that is so prevalent in the Southland.
And price differences may also have a subtle but widespread impact on California residents and the economy:
Some experts say the uncertainty of what a typical home really costs may be keeping companies from expanding their operations in the state while, at the same time, making the national economic picture look better than it really is.
“Home price figures are like noses: Everybody has one. And like noses, everybody’s figures are different than everybody else’s,” said Stan Ross, a co-managing partner of national real estate consultants Kenneth Leventhal & Co.
In California, the most widely reported numbers are tabulated by the California Assn. of Realtors.
Although the trade group collects sales data from only 74 of its 181 boards of realtors in the state, those boards represent areas that account for more than half the state’s home resales, said Leslie Appleton-Young, CAR’s director of research and economics.
Each of those 74 boards records every transaction that closed escrow in its area on a monthly basis and then submits that data to CAR. The state association combines the boards’ data to derive a median price for each of 15 regions in California--a figure that is supposed to reflect a midpoint in home prices for each given area.
For example, the trade group says the median price of a home in Los Angeles is $198,655, meaning that half of all homes sold in February (the most recent reporting month) sold for less than that amount and half sold for more.
“It’s a good way to measure price trends,” Appleton-Young said. “We’re confident our numbers are accurate.”
But the realtors’ system isn’t perfect. Since 60% of the boards don’t report their information to CAR, the monthly figures that the trade group publishes reflect only the information gathered from the 40% that do.
In Orange County, for example, which CAR says is one of the most expensive housing areas in the state (median price: $237,409), six of the county’s 11 boards share their information with the trade group.
But the large Anaheim and Buena Park/Cypress/La Palma boards are among those that don’t submit data, and they represent some of the county’s lowest-priced areas, with homes that can be purchased for well under $200,000.
Excluding those boards from CAR’s monthly survey tends to inflate median home prices for Orange County--and some realtors in the area are upset about it.
“CAR says the median in the county is more than $236,000, but I can show you places where you can get a nice single-family home for $180,000 and condos for even less,” said Kirk Kirkland, a realtor and president of a group representing the 11 Orange County boards.
“The (CAR) numbers create an impression that nothing here is affordable, so some people don’t even bother looking here when they decide to go shopping for a home. They’re scaring some people away from our area. . . .”
‘What’s Really Going On’
It’s not all CAR’s fault, said Kirkland; some of the Orange County boards don’t report their statistics to the state association because of staffing shortages or other problems.
But Kirkland said his group is working with veteran Orange County realtor and statistician Richard Poucher to devise a report “that will give a more accurate picture of what’s really going on down here.”
CAR’s numbers have other weaknesses, experts say.
The trade group’s monthly reports do not include new-home sales, which account for about 25% of statewide home sales and often cost less than houses in established areas. Nor do they track homes that were sold without the help of a realtor, which are estimated to account for between 5% and 10% of all real estate transactions.
Then there’s the question of whether a median figure or an average best reflects the cost of a typical home.
Less Fluctuation
The CAR publishes a median figure, Appleton-Young said, because medians don’t fluctuate as widely as averages. An average, she said, could be easily distorted by the sale of a small number of multimillion-dollar homes, driving the average much higher.
“That’s not necessarily true,” contends John Karevoll, a spokesman for TRW Real Estate Information Services, another group that publishes widely reported price information on a monthly basis. “Our numbers are just as accurate, maybe even more so, than anybody else’s.”
TRW calculates its monthly price figures by looking at all deeds filed at each county’s recorder’s office. This information is entered into TRW computers. Sales below a certain dollar limit are tossed out because TRW figures they’re vacant lots, time-shares or some other inapplicable transaction. Sales above a certain limit are also removed in an effort to weed out sales of commercial properties.
Researchers at CAR and some other groups that publish home price figures say such arbitrary limits result in the omission of legitimate transactions, thus tainting TRW’s numbers. But Karevoll said the huge number of transactions that the company tracks more than compensates for the handful of legitimate sales omitted because of the upper and lower limits.
‘Every Grain of Sand’
“We’re counting every grain of sand--new homes, old homes, condos--everything, everywhere,” Karevoll said.
“The breadth of our survey overcomes any problem that might be created by (mistakenly) kicking out a couple of legitimate transactions. We’re not dependent on figures submitted by a select group of local boards (of realtors); we’re looking at all sales in each area, not just a portion of them.”
Although TRW claims the typical home in Los Angeles costs $201,578, and CAR says it costs $198,655, the Los Angeles Board of Realtors says the median price is a whopping $359,000 and the average is a staggering $514,460.
Again, it’s a matter of which areas are included in the Los Angeles Board’s survey and which ones are left out.
City Areas Left Out
The board includes most of the city of Los Angeles, including pricey Pacific Palisades, Bel-Air and Brentwood. Although it also includes some moderately priced communities, many other areas in the city where affordable homes can be found are left out--including the entire San Fernando Valley, where the Valley board publishes its own figures.
The median price of a single-family home in the Valley is $230,000, according to the local board, while the median for all residential properties there is $199,900.
Some experts look at numbers published by any realtor group with jaundiced eyes.
“I think there’s a natural bias of realtors to inflate their numbers,” said Michael Aronstein, president of New York-based investment strategists Comstock Partners Inc.
‘Promoted as Investment’
Aronstein and two of his partners were blasted by realtors last year after their forecasts that home values would eventually tumble were featured in Barron’s, an influential business weekly.
“In the last decade, housing has been promoted more as an investment instead of just a roof over your head, and the realtors have played a big role in formulating that opinion,” Aronstein said. “And when you’re promoting something as an investment, you want to see its value keep going up.”
Officials at realty trade groups bristle at such remarks and say they would never purposely inflate their price figures.
“Our numbers are legitimate,” said Appleton-Young at CAR. “We track home sales for several reasons, but promoting more sales isn’t one of them.”
Gaining Publicity
By tracking sales and price trends, she said, the trade group can see how the housing industry--a key component of the economy--is faring.
Many of the groups that publish home price figures have yet another motive: publicity.
‘Such a Big Issue’
“Housing is such a big issue here that the newspapers jump all over any real estate story they can find,” said Michael Carney, executive director of the nonprofit Real Estate Research Council of Southern California.
“Some of the organizations that publish these reports may have other uses for the data, but I don’t think the publicity value is lost on them, either.”
Carney’s own group publishes a variety of surveys, one of which is released semiannually to Southland media outlets and is designed to track home-appreciation rates.
The survey has drawn criticism from some other economists because it samples only 214 Southland homes, compared to the thousands of sales sampled by some other groups.
But Carney said the report is a fairly accurate gauge of value movements in a given region because, unlike most other surveys, an appraisal is performed of each property regardless of whether it has been sold.
Regardless of which group’s numbers are best, the confusion over the true cost of housing may be having a subtle but broad effect on the economy.
Many businesses use home price figures for a variety of reasons, from formulating their expansion strategies to determining what type of relocation benefits they should give employees moving into the state.
James Park of the Valley Economic Development Center, for example, has been relying on the Los Angeles Board of Realtors’ figures to help formulate a business plan for a client who is a mortgage broker. The broker wants to expand his operations outside his current Van Nuys base.
“We’re trying to find the most promising areas for expansion,” Park said. “Knowing which areas have the most sales can give us an idea of where the most loan business will be, and knowing how much the homes in each area cost gives us an idea about how big the loans will be.”
But until talking with a reporter, Park said he didn’t know that the Los Angeles Board’s figures say that a typical Los Angeles home is more than 50% above the estimates of other organizations, including the California Assn. of Realtors.
“That’s a little surprising,” he said. “You can’t afford to be too far off when you’re formulating a business plan.”
California companies that hire out-of-state workers say the monthly figures published by the various organizations aren’t accurate enough to use when determining a new employee’s relocation benefits, such as company-paid housing subsidies.
As a result, many employers hire outside consulting firms to provide a complex analysis of the worker’s current home and life style, determine how much it would cost to lead a similar life in the new location, and then recommend a compensation package that will entice the worker to move.
“The figures that realtors and those other groups publish are useless for what we do,” said Peter Packer, a spokesman for relocation consultants Runzheimer International.
While the discrepancies of what a typical California home really costs may cause headaches for companies based in the state, some experts say the confusion may also have an impact far beyond California’s borders.
For example, officials at the National Assn. of Realtors in Washington use the California association’s numbers in their own roundup of sales and price activity across the nation.
Those statistics are then released to the national press and relayed to millions of people across the country.
Although it’s virtually impossible to measure, some experts say reports of California’s unusually high home costs scare away families and businesses in other states that might otherwise consider relocating in the West--even though those fears may be based on misleading home-price data.
Sent to Commerce Department
Perhaps more important, the national association’s figures are used by the federal Commerce Department to estimate the nation’s gross national product, a key economic figure that is used for a variety of purposes by the government and private businesses alike.
John Tuccillo, chief economist of the National Assn. of Realtors, estimates that all segments of the real estate industry account for a combined one-sixth of the nation’s GNP.
Some experts say that if the numbers published by NAR are inaccurate--not just because of the California association’s estimates, but because of estimates provided by all 50 state associations--it could mean that federal economic policies are being based on misleading data and that companies are plotting corporate strategy based on faulty information.
“The ramifications of that are really overwhelming,” said Comstock’s Aronstein.
Realtor economist Tuccillo dismisses such notions.
“The numbers we publish are about as accurate as you can get,” he said. “Besides, we’re sort of the ‘keepers of the flame’: We’re the only group that tracks these numbers on a nationwide basis, and the federal government needs it.”
The battle over who has the most accurate home-price figures has its lighter side.
When a nationwide network of residential real estate brokers released a survey last year saying that the San Diego community of La Jolla was the nation’s most expensive housing market, the report didn’t sit well with some realtors in image-conscious Beverly Hills.
So Mike Silverman, a prominent real estate broker, commissioned his own study that showed the average price of a home in the world’s playground of the rich and famous was $1.8 million--nearly 50% more than the cost of an average home in La Jolla.
“Just imagine it--somebody saying that Beverly Hills isn’t the most expensive housing market in California,” Silverman sniffed. “We weren’t angry with that other survey, but we just wanted to make sure the truth got told.”
Homeowners Should Ignore Most Figures
Although every group that publishes home price information claims that its figures accurately reflect the health of the surveyed housing market, even the experts who compile the reports say consumers and businesses shouldn’t put too much stock in monthly variations.
“The fact is, no single homeowner is going to own the median-priced home, and no one is going to experience the exact appreciation rate that our surveys show,” said Leslie Appleton-Young at the California Assn. of Realtors.
“The numbers that we put out monthly are statistically valid, but they’re best used for tracking long-term trends. If you looked at a monthly report and said ‘Oh, boy, my house went up 1.7% in value last month,’ you’d be pretty silly.”
SOME MAJOR COMPILERS OF HOME PRICE DATA NAME: Calif. Assn. of Realtors WHEN REPORTED: Monthly FIGURE USED: Median HOW COMPILED: Sales reports from some Calif. boards NAME: TRW Real Estate Information Services WHEN REPORTED: Monthly FIGURE USED: Average HOW COMPILED: Grant deeds filed at Recorders’ offices NAME: L.A. Board of Realtors WHEN REPORTED: Monthly FIGURE USED: Median and Average HOW COMPILED: Sales reports from certain L.A. area boards NAME: San Fernando Valley Board of Realtors WHEN REPORTED: Monthly FIGURE USED: Median and Average HOW COMPILED: All sales reported to Valley Board NAME: Nat’l Assn. of Realtors WHEN REPORTED: Quarterly FIGURE USED: Median HOW COMPILED: Reports from member state associations and some individual boards NAME: CU Mortgage WHEN REPORTED: Quarterly FIGURE USED: Median HOW COMPILED: Data from Calif. Assn. of Realtors and Calif. Mortgage Bankers Assn. NAME: Jon Douglas Realtors WHEN REPORTED: Irregularly FIGURE USED: Average HOW COMPILED: Sales from selected Westside boards NAME: Real Estate Research Council of So. Calif. WHEN REPORTED: Semiannually FIGURE USED: Appraised value HOW COMPILED: Appraisals of 214 Southland homes NAME: RELO/Inter-City Relocation Service Org. WHEN REPORTED: Semiannually FIGURE USED: Average HOW COMPILED: Data from selected boards and estimates of some RELO brokers NAME: Coldwell Banker Res. Real Estate Services WHEN REPORTED: Annually FIGURE USED: Average HOW COMPILED: Average sales price of three “typical” homes in each surveyed market NAME: Lomas Mortgage/U.S. Housing Markets WHEN REPORTED: Annually FIGURE USED: Average HOW COMPILED: Loan data supplied by Federal Home Loan Bank Board
