10/31/2012 08:01 EDT | Updated 12/31/2012 05:12 EST

Who Can You Believe About the Real Estate Market?

FILE - In this file photograph taken Feb. 23, 2009, a foreclosure sign blows in the wind in front of a home under foreclosure in Antioch, Calif. More than 1.5 million older Americans already have lost their homes, with millions more at risk as the national housing crisis takes its toll on those who are among the worst positioned to weather the storm, a new AARP report says. Older African Americans and Hispanics are the hardest hit. "The Great Recession has been brutal for many older Americans," said Debra Whitman, AARP's policy chief. "This shows that home ownership doesn't guarantee financial security later in life." (AP Photo/Paul Sakuma, File)

I've always found the disparity of housing market articles fascinating. On any given week I will come across headlines varying from predictions about an imminent collapse to stories about how the market has never been better. Statistics can be manipulated in so many ways that realtors, journalists, economists, or whoever feels like it, can pretty much paint the market to look however it best suits them.

Recently, for instance, the Toronto Real Estate Board blamed the drop in September home sales on the fact that this September had fewer working days than most. I can't help but ask myself why the heck I've been working so many weekends, if those sales don't even count!

The Canadian Real Estate Association is, in fact, no better. A recent headline of theirs proclaims 'Home sales up 2.5 per cent from August to September.' Kind of gives you the impression that things are moving in a positive direction, doesn't it? The only problem is that September, the official kick-off month to the busy fall market, is usually up much more than 2.5 per cent compared to August, which is consistently amongst the slowest months in the Canadian real estate market, as that's when so many of us take our vacations.

In light of all of the nonsense out there, when it comes to real estate maybe it's best to stick to the acronym KISS, which most of us know stands for Keep It Simple, Stupid! In the spirit of KISS, I've included two very basic graphs below, but as you'll see, sometimes not even the simplest of graphs is as straightforward as it appears.

The first graph, for instance, is a popular one that I got off of the Toronto Real Estate Board's web site. It shows the average prices of Toronto homes from January 1995 to the present, and paints a picture that real estate prices, with a few minor exceptions, just keep going up and up. It seems that it couldn't possibly be any more clear or obvious, and for those reasons has contributed to countless first-time buyers coming to the decision that if they want to make money, then all they need to do is buy a property. After all, according to the graph, regardless of when you buy property prices will certainly rise in the coming years. Well yes, I suppose that's true, as long as you don't consider inflation or a more reasonable time-line.

The second graph, the one which I prefer, was produced by the Canadian Real Estate Association. Not only does it span all the way back to 1980, it includes an adjustment for inflation. After all, if your home's price doubles but your money is worth half as much as it used to be, has your home really gained any value? This graph also illustrates that home values do not, in fact, always go up. People who bought properties in late 1981 had to wait all the way until 1993 to be able to sell it for the same value they bought at and even then they only had a short window to do so until prices dropped again. Buyers making decisions based on this graph would certainly be less convinced that now is a great time to buy.

Maybe keeping it simple is not so simple after all.


Graph #1 - via the Toronto Real Estate Board


Graph #2 - via the Canadian Real Estate Association