How do we actually know what property values are doing at any given point in time?
If you think about it for a second, it’s a tricky question to answer.
To start, every property in the market isn’t trading hands on a microsecond basis like the stock market, and the long timelines between sales of the same property introduces uncertainty regarding how prices are evolving over time.
Second, we also need to think about what we’re even trying to measure the value of in the first place.
Not all homes/properties are created equal, nor do they share identical features. And there are actually many property types available in the world in which people can live in or purchase for other uses.
Here’s a brief non-exhaustive list, to give one a sense of the multitude of possibilities:
- Detached homes
- Mobile homes
- Leasehold properties
- Float homes
- Rental properties
- Vacant land
It’s easy to see right away that the question of what specifically we’re trying to measure is not only critically important to answering the question, but it also introduces complications when it comes to trying to measure valuations accurately over time.
What can you trust?
It’s interesting that there’s sometimes a sense of mistrust and skepticism with regard to the accuracy/validity of various price metrics. If you follow real estate as a topic of discussion for long enough, you’ll probably come across people saying things like:
“The MLS® HPI is untrustworthy because it’s cooked up by the real estate industry” or,
“The average price is the truest indicator of price” or,
“Median prices are the best price measures because they aren’t skewed by outliers” or,
“Repeat sales indexes are the only true measures of price since they track the change in the value of the exact same property over time”.
Interesting so far? Read on….