A lost cohort? No!



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The new vocabulary used to describe the shape of the recession is either depressing or confusing, especially to the cohort of university students who are about to graduate.  Job offers have been taken back while many people with jobs have been laid off. The next cohort looks at this and must wonder: what will life be like next year?

I was part of a recent conference call with Tom McGee (CEO of the International Council of Shopping Centers, ICSC).  He had lots of sobering news but the point of the call, about disruption, was basically hopeful: where to put time and money to encourage and develop the next generation of leaders. Continue reading




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To model something means to represent it.  People create models of poorly understood or hotly debated things because doing so clarify hard-to-understand issues, such as weather patterns (including climate change) and real estate price dynamics. That fact (and Covid-19) explains why models appear in the news so often now.  Models use mathematics and arithmetic since data on the current reality may not be available for another year or two.  This post discusses the issues at stake and how to use the output of a model. Continue reading

Negotiating with tenants during a crisis



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Next week, many tenants will go to their landlord and say “I lost my job and I don’t have the money”.   Some large US retailers are preemptively saying that they will not pay.  Being a property manager excites many people because, at its core, the job is about helping people and solving problems.  The problem in this situation is a negotiation.

Derek Lobo and SVN Rock Advisors offered an 33 minute webinar with lots of practical advice on what to do on April 1 (and beyond).  For example, should you drop rent to a tenant having trouble?  (Answer: No because there are lots of more subtle solutions.) Continue reading

Probability, COVID-19 and not Real Estate


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I teach Real Estate Market Analysis.  For many people, the hardest part of this course is acting on the idea that we live in a probabilistic world.  It is hard to find examples which illustrate that shift in perspective.  Recent events offer two very good examples.

1/ On Testing: The Ontario government notes that 4470 people have been tested for the novel coronavirus and only 74 have shown evidence of the disease (with another 580 pending) (as of today): about 2 percent of people test positive.

Lesson 1: Almost all of the people who display enough symptoms to be tested do not have the disease.  In other words, there is lots of uncertainty.  Don’t panic.

2/ On the stock market: Lots of people have lost a lot of money during the past two weeks.  Even yesterday, when the Toronto Stock Market index fell by the largest point loss in 80 years, it was possible to win.

Numbers add some perspective.  Using data from the 200 trading days between May 14, 2019 and Feb. 28, 2020 (when prices were relatively calm), the average change per day was 0.00 percent.  The daily (sample) standard deviation was 0.54 percent: i.e. if the daily change is between -0.54 percent and +0.54 percent then, regardless of the exciting media story, nothing special happened.  Even a 1 percent change fails the test of being 95 percent confident that it is abnormal (i.e. 1/0.54= 1.85 which is less than the critical level of 1.96 needed to be 95 percent confident that the observed outcome is not due to random variation).

The TSX Index fell by 12.3 percent on Thursday.  If you believe that randomness is described by the Normal distribution and in statistical independence over time, which is the basis of most familiar statistical analyses, then Thursday’s drop was equal to 22.8 standard deviations.  The best probability table that I use gives up at 4 standard deviations.  Excel claims that the probability of observing something even more extreme is about 10 to the power -113 percent (i.e. a 1 in 10000… chance with 115 zeros).

There are about 1600 stocks listed on the Toronto Stock Exchange and, on Thursday, at least 20 stocks worth more than $1 went up.

Lesson 2: A trend is nice but the trend does not apply to everybody.  There are opportunities.

Lesson 3: Have a sense of perspective: prices go up and prices go down.  That is true of stock prices and of house prices.  Recognizing abnormal requires having a sense of normal.  The language of probability and statistics was developed for that purpose.  Use it.


A challenger to buying and selling real estate


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Several recent reports (e.g. [1] [2]) discuss “ibuying”: the ability to sell a house immediately.  Zillow and Opendoor (in the US but not yet in Canada) are mentioned most often as being willing to set a price and to do a deal: no need to clean the house for visitors or wait (nervously) to see what the market would bring (or how long it would take).

30 years ago, I wrote a paper in which my co-author and I tried to explain why the process of buying and selling a used houses differs from that of a used cars.  So, this topic is near and dear to my heart.  At the moment, I am teaching a course in Sales and Negotiation where I offer tips and advice on negotiating the price of a house or the salary for a first job.  Given the limited time, I can only hint at the possibility that, 10 years from now, face to face negotiating may replaced by an app.

The goals of a seller are obvious: sell at a high price and sell quickly.  Anybody can satisfy those goals if they think that they can find a buyer willing to pay a suitable price.  A lot depends on managing risk (price and time) and that is where large companies have an advantage.  As the Economist magazine says, success “depends on whether their algorithms get the price right.”

In our paper, we compared how used cars are sold and how used houses are sold.  We offered eight reasons as being plausible, of which two are worth mentioning here: the cost of risk and the costs of holding the inventory.  Successful ibuyers need an algorithm which can, with great precision, predict the selling price and the costs to the ibuyer of selling the property.  Standardized properties would be most attractive.  Agents in large cities concentrating in this segment would be most threatened by the growth of ibuyers.  Smaller properties are also likely to be more attractive to ibuyers since, with suitable geographic diversity, a lower price per house means that the portfolio risk is more manageable.

Real estate markets suffer from a number of problems which frustrate simple economic models, including illiquidity (e.g. leading to a bid-ask spread), trends and price bubbles, being large and lumpy.  Each of these issues involve ideas which confuse statistical algorithms.  The limitations of a pricing algorithm would be tested in a city with a price bubble since bubbles are unstable: i.e. unpredictable in ways that statistical or machine learning models find hard to account for.

Finally, I think that this new way of doing business will also challenge appraisers who estimate a market value of a property.  Even if the ibuyers algorithms and automated valuation models are similar, appraisers do not need to put their money where their mouth is (other than professional reputation).  They do not need to acknowledge the risks in any estimate: I have never heard an appraiser say “This property is worth $556,677 plus or minus $23,456 19 times out of 20”.

(If you think that you are pretty good at predicting then you might consider the techniques used in Kaggle’s recent competition.  They are much more sophisticated than the methods used for popular price indices.)





Developing Critical Thinking


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Employers say that they want it.  Supposedly, AI will convert the kinds of jobs which do not use it into roadkill.  There is a debate about whether millennials have got it.  Universities try to teach it in class and through experiences [1] [2].

Being able to think critically affects the real estate industry.  Lots of surprisingly young people are responsible for buildings worth a lot of money.  The owners want to hire people who responsible (i.e. follow instructions) even if critical thinking reveals when it is better to challenge “common sense” and to not follow the standard operating procedure.  Recent history has also led to a bit of laziness, since people could ride the surf of upward price trends.

Can critical thinking be taught?  It is best to start with: what is critical thinking? Continue reading

Different meanings of Value


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Guest speakers visit my classes each year and introduce ideas too new to be included in any textbook.  Since my goal is to prepare the next generation of leaders, listening carefully to what the different guests say uncovers some variations on a theme: they remind me of the many different ways that people talk about “value”. Continue reading

Remembrance Day and Real Estate


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On Remembrance Day, we are supposed to remember the sacrifices of veterans.  This act of remembrance may be more important at Canadian universities since, unlike US universities, seeing a student in uniform is rare.  A bit of remembering would indicate some deep connections to the real estate industry.  I am reminded of a speech given by Rex Murphy to the Toronto Real Estate Forum about 10 years ago, that received a standing ovation.

It is easy to talk about how the veterans of World War II, and that fewer and fewer remain.  It is easy to talk about how they returned home to create the society we live in today which, while good, is also a work in progress.

A more forward looking perspective would think of veterans who served as peacekeepers in many places around the world.  They served in places where, at any time, the rule of law may be replaced by the rule of whoever is in power currently.

Peacekeepers have served in places where the meaning of RoI that would be familiar in Canada needs to be paired with a second meaning.  Our students are taught how to calculate the return on an investment and very few need to worry about the return of an investment.  Physical and contractual instability does not encourage people to make the kind of long term productive investments commonly seen in Canadian real estate.

So, it is worth spending a minute or two of silence to consider our veterans and the lives they have lived.  Lest we forget.


More on Number Sense


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This second posting on the topic of number sense highlights some things I learned or realized since writing the first one.  This post emphasizes some new thinking on education and more of my ideas on how to develop and apply this sense, especially the overlooked importance of the number used to represents nothing.

A recent podcast from Freakonomics focused on math education in the US.  Steve Levitt advocates that math teachers should focus on “data fluency”.  At about minute 27, there is a discussion of what instructors at US “colleges” (i.e. universities) expect students to know vs. what high school teachers teach students.  The instructors argue for three things:

  • Mechanics: +, -, *, /, and especially fractions (personally, I think that memorizing the times tables up to 12 x 12 is not a waste of time)
  • Data analysis and problem solving: ratios, growth rates over time, proportions, interaction effects
  • The algebra of linear equations

With that solid foundation, everything else can be taught at a university.  Part of the problem is that high school teachers think differently: i.e. they try to teach everything.

For people who advocate for the importance of data analytics, it is important to note that the tests are changing.  In the US, doing well on the SAT exam is seen as key to being accepted at a preferred university.  Intended as a general test of intelligence, the SAT test now has a section on evidence-based reading and writing where test-takers are asked to interpret a section of text which contains some numbers.  These questions are a response to the claim that “I won’t use math in everyday life.” which was always false.

Even journalists are learning this lesson and media are responding by hiring journalists who can work with numbers to uncover and make sense of issues hiding in plain sight.  For example, the huge number of sexual assault cases deemed to be “unfounded” even before going to trial.  It is becoming less common to hear a journalist admit that they like their job because “they are not good with numbers”.

The challenge remains: how to develop a good sense of numbers without taking a class in arithmetic?  I think that there are many ways to gain experience.

First, if you know nothing about a situation then everything must be a matter of calculation.  So, read widely to know more.  It only requires a bit of curiosity.  For example,

Or follow the news: e.g. https://renx.ca/ or https://www.bisnow.com/toronto and ask, does that combination of numbers makes sense (or is something being hidden from you)?

It also seems to me that the number 0 does not get the respect it deserves.  If you think that 0 means an absence of something then you have a problem.  It is more accurate to say that zero is the line between positive numbers and negative numbers.

Understanding the line between profit and loss is critical in the real estate industry since the line can seem to move.  People estimate price trends all of the time and the most common example of a failure to think critically in this industry may be the claim that “prices of property will always rise”.  While the claim may seem right based on the moving target called “recent history”, older history offers many examples where the rate of growth in price is less than 0.

Experience with data fluency would help when learning from figures.  If the word “graphing” were replaced by “data visualization” then it is a cool new skill.  The Economist and Scientific American magazines show what is possible.  Data visualization is central to a lot of discussions in the real estate industry because so much depends on location and spatial relationships.

Mostly, number sense helps with the informal work that occurs before the formal work begins.  For example, a short article in the Economist applies this skill: how much would it cost the US government to build a moat at its southern border and fill it with alligators?  Their answer is US$30,000,000,000.  Knowing where to find some defensible numbers and being able to do back of the envelope calculations (in your head?) can make you appear authoritative.


Thinking Critically


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“I don’t want to think about thinking.  I just want to know the right answer.”

This thought is not uncommon.  It fails to display critical thinking and lacks the kind of curiosity that makes problem solving skills valuable to employers.  It is also based on a misunderstanding of knowledge and what it means to know the right answer.

Especially to people in the real estate industry, critical thinking skills are important.  The industry has many “wicked problems”.  Every industry thinks that it faces turmoil but, sometimes, the turmoil in the real estate industry seem more existential: e.g. will the retail malls survive the effects of e-commerce or become empty wastelands to be filled with the homeless or with zombies?; will government policies aimed at overcoming an affordability problem for home owners make the problem worse?  or how to make all of the stakeholders in a development happy now and in the future?

Sometimes, I think that thinking critically means that you should criticize any conclusion.  Criticizing everything is unconstructive and time consuming, so the alternative seems quicker.

A better definition of critical thinking is to be aware of the logic being used.  Continue reading