Business statistics fundamentals and applications

American Pastoral

The National Association of Realtors (NAR) created a useful statistics in terms of real estate, analyzing both the effects of the war in Iraq on the market and the possibilities of recovery for the future (the statistics was compiled in 2003). The data itself, as it resulted from the article, was collected by the Property & Portfolio Research, a company providing real estate data on request.

The statistics includes four main segments of the real estate market: the office market, the warehouse market, the retail market and the multifamily market. The intention of the statistics and the analysis is to correlate the war in Iraq with the trends on the real estate market. For example, in the case of the office market, the economic recession that characterized the beginning of the century (the period 2000-2002) led to a "corporate anxiety" and a slow trend on the number of jobs provided on the market. This impacted the office market in terms of demand.

On the other hand, new office space was created (around 25.1 million square feet, according to the statistics and the analysis) which meant that the vacancy rate rose to 16.7% in the fourth quarter of 2002. The direct impact of economy on the office real estate market is clear here.

On the other hand, the statistics includes an analysis of the way demand and rent evolved in the main cities of New York. In terms of demand, for example, given the expected increase in the job growth rate in Washington, Dallas-Fort Worth or Chicago, these are also the areas where we may expect to see a healthily growing real estate activity.

In the warehouse market, the consumer and the consumer demand were the main determinants of the trend, while the "historically low mortgage rates" implied a growth in the number of people affording to buy a house and a decrease in the rental subsegment. Again, demand in the multifamily market is also determined by the economy and the jobs growth rate.

Summarizing, in my opinion, the statistic was intended to provide a reflection of the real estate market at the end of 2002 and the beginning of 2003, divided in its four main segments: office, warehouse, retail and multifamily. Second of all, the statistics aims to point out towards the urban areas with highest chances of performing well in the future. Third of all, the statistics is designed at correlating and interconnecting the main economic factors with the evolution of real estate.

In terms of fallacies, I will point out to something which is not necessarily included in this category, but comes as irrelevant for the overall statistics. In the retail and multifamily categories, the growth in Honolulu was among the strongest of all listed categories. While this may have represented a positive trend, nevertheless, the impact on the overall real estate market may have seemed rather less important, as Honolulu cannot be compared, in terms of size and population, hence in terms of demand, with Chicago, New York or Los Angeles. So, we may hereby conclude that statistics in general and this statistic in particular gives only hard facts, without actually considering whether or not those facts are important for the overall motivation of the statistic.

Nevertheless, this statistic was extremely useful and had an important value, due to several factors. First of all, one can use it to foresee a trend for the future. Indeed, lecturing the figures and interpreting them leads to relevant conclusions in terms of what will happen in the future with the real estate business. According to this statistic, one also needs to keep an eye on the economy and the evolution of economic factors in order to be able to determine how demand will evolve on the real estate market. As I have previously pointed out, not only does economy influence the evolution of the real estate market, but it is one of the main factors that coordinates it.