July 16, 2010
The Globe and Mail says CREA stats show Canada home prices fell for the first time this year. CREA, however, says the national average price of homes sold rose 4.9 per cent.
The reason for the discrepancy is that the Globe and Mail is looking at a month-over-month dip whereas CREA is referring to year-over-year growth.
Neither stats are overly informative though and media reports that Canada home prices are “falling” because of a subtle monthly drop in the average MLS sold price are misleading.
They’re misleading because CREA stats are skewed. For instance, a couple extra multi-million dollar homes sold last month in Toronto’s Rosedale neighbourhood will push up the MLS reported average for last month. But, this obviously doesn’t equal a change in home values. CREA itself states that its average price stats can be “useful in establishing trends over time”, but not much more.
A far superior tool for determining value trends in the Canadian real estate market is Teranet’s House Price Index.
The House Price Index gets around the apples verse oranges comparison that plagues MLS by controlling for changes in the mix of houses sold in a given period. To do this, it only looks at fluctuations in the value of homes that sell more than once. For instance, if a house sells for $300,000 in January 2006 and then the same house sells for $350,000 it registers that as meaningful data. Whereas it makes no comparison of million dollar mansions versus inexpensive bungalows.
According to the House Price Index, Canada home prices have been steadily rising since they bottomed out around April 2009. Its interesting to note that home values in many cities such as Toronto only surpassed their 2008 peaks earlier this year – Toronto’s April 2010 prices were up only 3.7% from Toronto’s former record month August 2008.
Considering the 250,000 or so immigrants to Canada each year, the health of Canada’s economy, its plethora of natural resources, our relatively affordable housing, and historical trends, it seems likely that Canada home prices will continue to rise well past 2008 levels.
I may be proven wrong but I’d bet my lunch that the next six months will show a continued yet gradual rise in the value of Canadian homes. The arbiter of my prediction must however be the House Price Index and not the MLS.