What’s happening to home prices and where are they headed?
REALTORS® are asked these questions every day by clients trying to understand whether it’s a good time to buy or sell.
But what price do you look at? Average, HPI, benchmark, median? You’ll find definitions for these and other real estate terms in the glossary section on this site.
This article just published on the website of the Real Estate Board of Greater Vancouver really clarifies that it is indeed the benchmark price that best reflects reality.
To ensure you have the most accurate picture of home price trends, the REBGV developed the MLS® Home Price Index (MLS® HPI) together with the Fraser Valley, Calgary, Toronto, and Montreal real estate boards and the Canadian Real Estate Association. They contracted with a third party, Altus Group, to build and maintain the MLS® HPI.
The MLS® HPI is the best and purest way to gauge home price trends. It takes housing quality into account, such as housing category, location, number of rooms, square-footage, etc., in a way that no other price-tracking method does.
What makes the HPI a better measure?
The MLS® HPI tracks changes of “typical” homes and excludes the extreme high-end and low-end properties.
“The key advantage is the MLS HPI® isn’t skewed by a changing mix of properties sold in a given month,” says Robyn Adamache, principal, market analysis, Canada Mortgage and Housing Corporation.
“We may get a month like August where the average price takes a huge drop because high-priced home sales have stalled. But this may be a one-time event, just a blip in the data,” says Adamache.
“When it comes to monitoring the market and measuring trends, MLS® HPI benchmark prices are a far better measure.”
The MLS® HPI is conceptually similar to the Consumer Price Index (CPI), which tracks inflation by measuring the value of a “basket” of commonly purchased goods and services.
The MLS® HPI uses a sophisticated statistical model to estimates home prices based on their “basket” of housing features. Those attributes remain constant over time, making the MLS® HPI the best tool for “apples-to-apples” historical comparisons.
Why use benchmark prices over averages or medians?
Average price are calculated by adding the dollar value of all sales in an area and dividing this number by the number of homes sold.
Average prices are easy to compile and understand.
“The downside is the average price is often volatile due to the changing mix of homes sold in a given month or time period,” says Helmut Pastrick, Central 1 Credit Union chief economist.
“For example in August 2016, the average price for detached homes plunged because of fewer luxury home sales due to the foreign buyers tax.”
Median prices are calculated by listing all sales in an area from the lowest price to the highest price, and choosing the midpoint.
Like the average price, the median price is easy to compile and understand.
“The downside is the median price is also skewed by the changing mix of homes sold,” says Pastrick.
Hi, I’m Jeff Wood and I love living in Nanaimo! And I love helping people make their move!
My wife and I moved to Nanaimo from Richmond in 2015, after raising our two kids there. We brought along our two precocious Border Collies; Jake and Cochise, who are sure they moved to Doggy Disneyland in the process. We live in Upper Lantzville and love it!
Before becoming a Realtor, I was a professional investor owning 8 multi-family properties with 24 tenants. I also spent 20 years as an Executive Headhunter, finding talented people for Fortune 500 clients in the USA and Canada. In that role, I functioned regularly as a professional negotiator, working with both sides to create a win win scenario. I also helped candidates relocate to start their new jobs and thus I have a lot of relocation experience.
Now as a realtor I apply all of these hard earned skills to the benefit of my clients, whether they’re buying, or selling, delivering results that move them!