Averages can misinform. Picture a room with Bill Gates, Warren Buffett, and eight other people, each of whom earn $100,000 annually. If a statistician were to average the annual incomes of the 10 inhabitants, the average annual income would be several million dollars a year, even though eight of the 10 inhabitants make nowhere near that amount. It would be impossible to implement a successful sales strategy based on that average income. In other words, averages can be irrelevant.
Such is often the case with real estate. Home prices in Phoenix tumbled an average of 51% from 2006 highs to the present, while Dallas prices tumbled an average of 11%. Average these two numbers and you get an average decline of 31%, which makes the Phoenix market look more robust than it is and the Dallas market less robust. What's more, that average is even more misleading because it is based on an average of an average.
The point is, don't let national averages influence your opinion of the economy too much. Most business is local, and what's happening in one part of the country can be completely different from what is happening in another part of the country. What's happening in your part of the country is what's most relevant.
-- This article was taken from a newsletter sent to us by Brian Bledsoe; it is not our original composition.
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