The 19th Century British Politician and Author Benjamin Disraeli once famously said "There are lies, damned lies, and statistics." and having published and studied enough of our own on ilFLS.com, I have to reluctantly agree.
Newspapers across the country are digging for information about foreclosures and the subprime mortgage market and statistics are an easy way to convey to readers the scope of the problem affecting the economy. It is much more dramatic to write about the 92,000 foreclosures in 2007 in Illinois and the 25% increase over the previous year then to say that there are many more foreclosures in 2007 than 2006.
I don\'t blame the newspapers for wanting to sell copies with dramatic headlines, but the problem is with most of the statistics quoted about foreclosures. Firstly, companies providing the statistics may have their own definition of \'foreclosure\' which may misguided or just plain wrong. Secondly, the underlying quality of the data which the statistics are based on may be not be of good quality. Put simply, companies are using bad data and measuring it incorrectly and then newspapers are publishing it.
What\'s the problem with bad statistics you saynull Well if you are in an economic downturn with a housing market facing challenges and then a company like Realty Trac publishes data which says your market has twice as many foreclosures as it really does and all of the papers pick it up...well I think you can see the problem. Real or not, people believe what they read, especially when it comes from the mainstream media. Being an investor myself, everytime I read another foreclosure statistic which misstates the truth and causes further turmoil in the market I get upset.
Realty Trac is widely quoted in newspapers across the U.S. and provides foreclosure statistics for reporters hungry for details about the impending doom and gloom. Here\'s the problem. Realty Trac doesn\'t collect its foreclosure listings locally, instead it purchases data second hand from local companies without regard to the quality of the data. But an even bigger problem is their definition of foreclosure. They define foreclosures as \'foreclosures filings\' in their statistics which are filings for default notices, notices of auctions sales and bank repossessions. In Illinois many properties get all three filings against them meaning that one property often gets counted three times in Realty Trac\'s statistics. This is extremely problematic because it gives people the idea that there are many more \'foreclosures\' than there actually are.
Furthermore even when Realty Trac strips down their numbers, like they did in an article in a recent Chicago Business magazine, and said their were 65,000 properties in foreclosure in Illinois in 2007, they still get it wrong, (the actual number was closer to but less than 50,000) I know because ilFLS.com has the actual recorders in the counties daily getting the foreclosure filings.
So reluctantly, I have to agree with my friend Benjamin in his opinion of statistics, they lie. However, if you are going to rely on statistics to make a determination on the current real estate market, take the extra time to look what is behind the numbers, and above all else, use common sense.