Bad Math by DataQuick Chief Analyst

I gotta call it when I see it.  This July 13 story in the Los Angeles Times points out that San Diego real estate prices have turned negative on a year over year basis.  The decline was only 1%, but after several years of rapid price increases, and many buyers and speculators purchasing real estate with risky financing based on the belief that prices would continue to rise, it is significant.  Also, many have observed weakening prices for several months, but year over year prices continued to show gains.

It is also significant because San Diego real estate has led the market up, and now seems to serve as sort of the canary in the coal mine for all housing markets that experienced rapid price increases.

So, the bad math?  It comes in the last line of the article:

The Chief Analyst of DataQuick, the company that tracks and reports real estate pricing information is quoted:  "San Diego had a 100% increase in the past five years," he said. "So far, it's been able to keep 99% of that, which isn't so bad."

Does the Data Quick chief analyst not understand that 1% is the decline year over year, but not from the peak.  Look at the graph in the article.  June 2005 was not the peak.  It was around October or November 2005.  So, the decline from June 2005 is not the total decline.  It is simply the 12 month decline.

But get a load of this math.  Prices go up 100% then decline 1%.  How much of that 100% increase did you keep?  If prices rise by 100%, they don't need to decline 100% to erase those gains, but only 50%.  If a house went from $100k to $200k, then dropped 1%, it dropped $2k, or 2% of the prior gains.  Chief Analyst?  Yikes.

Comments

[CrossProfit]

You’re math is correct.
However the author was referring to a June 05 to June 06 comparison. 493 k to 488 k is a 1% decline. The 99% figure is an approximation just like the 100% increase. The gist of it is that the decline is minimal.

Humorous – yes, but I wouldn’t mock the chief analyst too much.

Disclosure: This is a personal comment written by a CrossProfit analyst and may not reflect the opinion of CrossProfit.com.
http://www.crossprofit.com

[lamoneyguy]

Hi CP,
I understand his point, but he needs to think about his words if he is going to be quoted by the media. He's a big boy, I'm sure he can take some good natured ribbing.

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