When Economic Adjustments Can Mislead You
Welcome to the Real Estate Espresso Podcast, your morning shot of what’s new in the world of real estate investing. I’m your host, Victor Menasce. On today’s show, we’re taking a look at two different measurements of the exact same thing.
Imagine, for a moment, that you wanted to cut a piece of wood. You take out your trusty tape measurer and measure the distance you think you need. But then along comes an economist who says, oh, no, you’re not going to use that simple tape measurer, are you? That’ll only give you a nominal measurement. There’s a bunch of adjustments to be made in order to get the real measurement. Well, this is a joke, of course, but often jokes mirror reality.
The S&P CoreLogic CaseShiller Real Estate Market Index reports both nominal, that is non-seasonally adjusted, and seasoning adjusted data. You’re also going to get both of these reported in the news, and on today’s episode we’re going to talk about when to use one number versus the other.
The first adjustment is seasonal adjustment. The primary adjustment is made to go from nominal to seasonally adjusted. It’s to remove predictable seasonal patterns from the data. Residential real estate markets typically experience seasonal fluctuations like an increase in activity in the spring and summer. Most homes tend to be listed and sold during these warmer months, leading to higher transaction volumes and potentially stronger price growth.
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So when you hear numbers quoted in the media, pay close attention to what the numbers are actually telling you. Is it adjusted or is it not adjusted? Oftentimes, that number can be used to promote a narrative that may not necessarily reflect reality. And as you think about that, have an awesome rest of your day. Go make some great things happen. We’ll talk together again tomorrow.
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