Duped by Information

416SPACES  ·  MARKET ESSAY

On the incompleteness
of information

Real estate has an incompleteness problem. It's not talked about much, partly because it's uncomfortable, and partly because the industry runs more smoothly when everyone agrees to pretend otherwise. But it's there, sitting underneath every market report, every comparable sale, every confident prediction about where prices are headed.

The information you're making decisions with is not the information you think it is.

It's a record of what finalized. What closed. What got reported, tabulated, published, and handed to you weeks or months after the fact. All of it is backward-looking. And backward-looking data, used on its own to predict forward-looking outcomes, performs worse than chance. Statistically disadvantaged, in a market where you need to be right more than half the time to outperform doing nothing.

Closed sales data from last month tells you what finalized. It says nothing about what current buyer and seller activity looks like: the motivation, the urgency, the hesitation. Those don't get reported. They get felt, eventually, in the next month's numbers.

LOOKING UP AT STARS

There's a useful analogy here. When you look up at the night sky, you're not seeing the stars as they are. You're seeing them as they were, the light just now arriving. A star you're looking at might not exist anymore. You have no way of knowing from where you're standing.

A data stream works the same way. It's a faithful record of the past dressed as a window into the present.

Two consecutive months of rising sales volume and higher prices at the bottom of a market look like momentum. They look like a phase shift, a turn. Maybe. But the pattern has repeated itself often enough, with false starts that looked identical, that confidence in the read is the riskier position. The data doesn't tell you which version this is. It just hands you the pattern and waits.

“Reasoning completely with incomplete information is an elementary failure of reasoning”. The trouble is it's also unavoidable. The question is whether you know you're doing it.

THE SQUAWK ROOM

Consider the following scenario. You spend a year in a room in front of a continuous financial news feed: capital markets, energy acquisitions, publicly traded REITs, semiconductor manufacturing capacity being reshored, price divergences across asset classes. You absorb it all. You memorize it. You learn.

Then you go out into the market with your own book and start making trades.

Your performance over the next five years looks confusing. Patchy. You outperform in some stretches and miss badly in others, in ways that don't obviously correlate with the information you absorbed. You might have done better had you never sat in the room. Or maybe you were positioned for a run that never materialized. It's hard to know.

Now aggregate this experience across hundreds of people, sitting in similar rooms on different floors of the same building. Call them fund managers. Measure their performance against a passive index over ten years. The results, historically, are not flattering. These are firms with research teams, proprietary data, and access that individual buyers and sellers can only imagine. Their hit rate, surveyed across the industry, is worse than chance.

The point isn't that information is useless. It's that a continuous stream of seemingly complete information creates the illusion of clarity without delivering it. The squawk box tells you what happened. It cannot tell you what happens next. The people who've built careers treating those as the same thing have the performance record to prove it.

WHAT THE DATA ACTUALLY IS

In residential real estate, the backward-looking problem shows up in specific and predictable ways. Each data source has a lag, a blind spot, and a tendency to get cited as though it doesn't.

COMPARABLE SALES

A record of what someone paid, under conditions that no longer exist

A “comp” from eighteen months ago reflects a specific convergence of rates, demand compression, and supply constraints that have since unwound. You're not comparing apples to apples.

APPRAISAL VALUES

Historical data formalized into a present-tense number

An appraisal is built from the same backward-looking inputs as a comparable sale. It just arrives in a more official envelope. The number feels authoritative. The methodology that produced it is the same one with the thirty percent hit rate.

MONTHLY SALES VOLUME

What closed, not what's moving

October's sales figures arrive in November. Everyone trading in October was doing it without them. The information you don't have at the moment of action versus the information you have outside of it: that gap is where most of the error lives.

MARKET COMMENTARY

Pattern recognition dressed as prediction

"Momentum is picking up." "The market is finding its floor." These are backward-looking observations stated in the present tense. They feel like analysis. They're closer to narration — useful for understanding what happened, unreliable for positioning what comes next.

WHY NOBODY TALKS ABOUT THIS

It's not difficult to live under an illusion. And it's especially easy in real estate, where performance is almost never rigorously evaluated. Nobody builds a track record in residential real estate the way a fund manager builds one. There's no index to beat. No five-year annualized return to defend.

Instead, outcomes get rationalized. A property that underperformed gets attributed to extraneous events: rates moved, a building had issues, the timing was off. But a property that did well gets attributed to insight and expertise. Very convenient. The reality is, you only pay attention when you feel the pain. Everything else washes away.

If you bought three or four years ago in Toronto, you know exactly what that sentence means.

If you bought ten or fifteen years ago, you probably aren't reading this closely. If you bought yesterday, maybe the sky looks clearer to you. All three of those people are operating in the same incomplete information environment. Only one of them has noticed.

Markets aren't rational spaces. They're aggregations of incomplete information, acted on by people who don't know what they don't know, producing prices that feel like verdicts.

WHAT YOU ACTUALLY DO WITH THIS

The answer isn't paralysis. Decisions get made. Transactions close. People buy and sell in incomplete information environments every day, and some of them do it well.

The difference isn't access to better data. It's honesty about the data's limits. The practitioners who navigate this most effectively are the ones who treat the available information as a rough shape rather than a precise read: useful for orientation, unreliable for certainty. They lean on heuristics, not divination. They avoid strong language. They stay curious about what the data isn't capturing instead of defending what it is.

There's also a more structural point. The incompleteness of information is not evenly distributed. Some participants understand the lag. Others don't. Some know that October's numbers won't tell them anything about November's conditions. Others are treating last month's comparable as a reliable ceiling on this month's offer. The gap between those two positions is where advantage lives: not in superior data, but in superior honesty about what the data is.

Real estate doesn't come with an information scaffold. There's no complete picture available, not to you, not to your agent, not to the analyst publishing the monthly report. What's available is a partial view of a system that was already moving when you looked at it.

The useful response to that isn't to find better data. It's to hold the data you have more honestly: to know what it's telling you and what it isn't, to resist the comfort of false precision, and to make decisions that are calibrated to uncertainty rather than defended against it.