Are housing prices trending up or down? The state of home prices in Greater Vancouver is a much discussed topic at the moment. Last month several organizations issued reports examining the current and future direction of home prices in our market.
The BCREA Fall Housing Forecast recently reported that average home prices for residential properties, meaning detached, townhome and condo units, in Greater Vancouver are expected to increase three per cent this year compared to 2007. On the heels of this release, the Canada Mortgage and Housing Corporation (CMHC) similarly projected that residential housing prices across Greater Vancouver will increase three per cent by the end of 2008 compared to the previous year.
These numbers seemingly conflict with the figures the Board has released in recent months. According to the REBGV statistics release for October, residential home prices, as calculated by the Housing Price Index (HPI), have declined 8.8 per cent between May and October 2008, eliminating price gains witnessed in the first quarter of 2008.
So what accounts for the discrepancy? The prices in the aforementioned BCREA and CMHC forecasts cite averages, perhaps the most commonly referenced housing price measurement. In contrast, the Board uses benchmarks prices (see definitions below) as its primary indicator of home values.
As of Oct. 31, average residential home prices had increased five per cent in Greater Vancouver over the last 12 months to $599,068 from $569,903. Benchmark prices, however, indicate a 3.9 per cent decline to $518,668 from $539,703 over the same period.
Greater Vancouver has experienced unprecedented growth in home values the last five years. Both benchmark and average price data tells this story, though the numbers differ.
Between December 2003 and February 2008, the benchmark price of a detached home in Greater Vancouver increased 69 per cent from to $761,342 from $449,190. The average price of detached homes over the same period registered a 94 per cent increase to $920,644 from $475,087. For condominiums, benchmark prices increased 82 per cent to $387,032 from $213,140, while the average price increased 81 per cent throughout this five-year span to $424,839 from $233,733.
Whether it’s a seller’s or buyer’s market, the Board aims to convey the most accurate and current housing market information to members and the media. Following extensive consultations with economists more than a decade ago, the Board identified benchmark prices, produced by the HPI, as the most accurate measurement of home property values over time.
Similar to the Consumer Price Index that tracks inflation and measures the rate of price change for a basket of goods and services including food, clothing, shelter, and transportation, the HPI measures the change in the price of housing features such as lot size, age of the home and neighbourhood etc. These features become the composite of the ‘typical house’ in a given area.
Average prices are calculated by dividing the total dollar volume generated from home sales by the number of sales in a given period. Averages, however, can be misleading since the quantity and quality of properties sold in a given area change over time. As a result, average prices can fluctuate considerably, making the housing market appear unstable. The HPI solves this problem by pricing a constant quality and typical property over time.
Whichever measurement is used, regional housing reports only provide a broad outlook. Viewing the “housing market” at large offers only a snapshot of the collective activity within a region. Prices today are changing by area. Establishing a price depends on the property type and neighbourhood. Ultimately real estate is local and REALTORS® offer the expertise that allows clients to identify opportunities that match their local needs.
