Surveys Can Mislead, But Actions Can’t

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Surveys have the potential to mislead, actions often don’t – a truth that strategic business people pay very close attention to when analyzing their target markets. If you have ever been involved (online/over the phone) in a survey you probably know of which I am talking sometimes you aren’t quite 100% accurate in your answers. In fact, many members of the public actually believe that a survey is a quiz they are supposed to get right by providing the answer they believe the questioner is looking for.

There are many case studies that show that a string of bad news media stories or headlines can affect major swings in survey results. For instance Consumer Confidence surveys, if taken in a period when there is a lot of bad news (for instance the bombings in Boston), can result in an artificially low confidence rating. Similarly, a user survey that comes on the heels of a bad experience may be more negative then one that comes a day afterwards when the consumer has had time to calm down./p>

Knowing these factors are important when you are making a user survey through an online service like Qualtrics (https://www.qualtrics.com/core-xm/survey-software/) or over the phone. Surveys are very important trend indicators that help you understand your market and/or target markets but if the survey is constructed poorly or delivered at the wrong time it may show skewed results. So how do investors reduce their risk of bad survey results as they double check the underlying economic fundamentals of their target markets? Simply:

Follow The Money

Actions often speak much more loudly then words. That is why some of the not-obvious indicators can help provide investors with a little back-up data for their survey. In fact, there are a number of less well known indicators they study to back up their economic analysis and reduce their risk of making a bad investment.

The small effort it takes to understand the economic strength of your real estate market allows you to spot real estate trends 18 to 24 months in advance.

Average Rents and Average Vacancies: Average Rents or Average Vacancy Rate are often compiled using a small number of known purpose-built rental units in a market a phone call is made to these selected owners and they are poised a question like How many units do you own, how many are vacant today? This can lead to wildly inaccurate market conclusions. How? The owner may not wish to admit that they have high vacancy, or they may have been having a poor couple of months and have higher vacancy than others, or they may just be poor managers. These small data inaccuracies are then extrapolated to reflect the full market. So, sometimes the market looks more positive than it actually is (i.e. the oft stated 1% vacancy rate in Toronto) or worse than it is (the thousands of ghost units in Vancouver).

In other cases, the inaccuracies of market health are the result of the poor timing of the survey being taken. If an annual survey is taken in what is regionally known as the high vacancy season, it can have a detrimental effect on market perception for the whole calendar year (which, by the way, strategic investor are OK with because they understand the inaccuracy, providing them with better buying opportunities).

For instance, in some regions such as those with a high concentration of student rentals, or oil and gas drilling regions, there are known vacancy rhythms that are quite predictable. Students move out at the end of the school year, oil and gas drilling slows substantially during spring break-up, so layoffs occur. Sometimes, even due to situations like expired or disconnected numbers over time, the information obtained from these surveys becomes inadequate. If the survey is taken during these windows, it renders the survey results completely useless. This is another reason to be a Geographic Specialist focused on one specific region and know it better than anyone else. Another way to avoid these situations could be to invest in services from firms like RealPhoneValidation that provide phone validation api that checks the authenticity of the numbers obtained.

Strategic investors study the suite for rent sites in their target market often to spot rent trends, vacancy trends and to spot opportunities. They jump on-line and play the role of a potential tenant using search terms that the potential tenant would be using to find rentals in their specific market, they keep track of number of rentals available and they pay close attention to rental rates. Averages are for average investors; strategic investors understand that they are in the business of providing a commodity (rental suites) to a knowledgeable consumer who has real time access to market intelligence: YOU must know your current commodity price and adjust to this reality.

Consumer Confidence

Consumer Confidence surveys are helpful indicators but you have to be aware that it is one of the most volatile of regional indicators and the one that is most influenced by the timing of the survey delivery. (here is the methodology used to make as accurate as possible survey results by the Conference Board of Canada: http://www.conferenceboard.ca/topics/economics/consumer_confidence.aspx ). They have worked hard to reduce survey risks, but no matter how robust the survey technology, when consumers are commenting on their emotions or feelings, the results can be dramatically affected by many short term influencers.

There are a few steps that a strategic investor uses to back-up survey results.

#1 They make sure they are not using national data to extrapolate onto their regional market. If they were to do so, they are adding even further inaccuracy to the results. They dig deep into the data to find out what the consumer sentiment is for their specific region.

#2 They understand that consumers speak with their wallets. This means that real measureable numbers can be analyzed to see if they match up with how the survey results say the consumer is feeling. What better way to see how the regional consumer is feeling than to look at the following:

• a. Retail Sales: Consumers slow their spending when they are not confident in their job potential or their future financial position. Analyze the retail sale trends to give you a real life indication on consumer confidence.
• b. Vehicle Sales: Vehicle sales are a large purchase, one of the largest consumers will make in their lives. If you are seeing a region with vehicle sales on an upward trend, you are seeing a region with strong consumer confidence.

Net Population Growth

A real estate market lives or dies by the population trends. There are many economic indicators, market drivers and market influencers that are indicators of the health of a local economy. However, no indicator is more important than the movement of people either into or out of a region. To state what seems obvious: without people, demand for rentals and purchases drop, while with a growing population, there is upward demand on these key profit centers. I say seems obvious because if it was as obvious as it seems you wouldn t see so many investors rushing to regions because they are cheap rather than regions that are growing.

That is why strategic investors obsess about population trends. Ever month, most countries, provinces, states and cities release their latest population surveys, which are very similar to other surveys: they are a small data sample extrapolated out. YES, we use these to spot trends and opportunities, but it is always nice to see some on the street data to back it up

Two of the more accurate indicators of which way a population is moving are:

• a. Moving Company Surveys and Direction Costs. Some moving companies Greensboro release data analysis of the demand they have the movement of households. This is a real life indicator, based on the actual movement of families into or out of a region. A sub measurement of this, if you want to delve even further, is to receive quotes to move between cities (for instance Vancouver to Winnipeg with a Quick Transfer service). Then get a quote for the same amount of goods in reverse. The higher the quote differential, the higher the migration from one city to the other. If a lot more people are moving to city A, the price to move back to city B should be substantially lower because companies don’t like to run empty trucks.
• b. U-Haul National Migration Trend Report. This is a great way to find out if young families are moving into a region for jobs. This report is a compilation of, really, where the trailers and trucks are piling up. U-haul one-way rentals really do show in which direction people, especially younger families, are moving for new economic opportunities.

The purpose of this article is to help you to see the market, and to double check your market, as a Strategic Investor does. Never take general surveys as stand-alone proof of a market s economic health; do that extra 10% others aren’t often willing to do and you can reduce your investment risks while increasing your long-term returns.

For further info on how to filter the market noise so you can focus on the actual signals that matter, read this analysis: http://www.donrcampbell.com/can-you-discern-the-dangerous-difference-between-noise-and-signals.
Be Strategic!

began his investing career in 1985 with a house purchased in Mission, BC. He is Founding Partner and Senior Analyst of The Real Estate Investment Network and currently owns over 170 doors in BC and Alberta.