A Tale of Two Systems

A Tale of Two Systems

Canada has one national housing market. It also has two credible surveys for tracking the direction of that market. Which one should you believe?

Ian McGugan, Financial Post Magazine  Published: Tuesday, February 02, 2010

Looking to buy a house? Thinking about selling? Worried about being left behind if you don’t act now? I know how you feel. Real estate accounts for about a third of Canadians’ net worth and there’s no surer way to set the fettucini flying at your next dinner party than to start comparing recent sale prices on your street. The problem for most of us is that we don’t know how to assess the Market.

One view of the Canadian real estate market – the view that you’re likely to hear in newspapers and on TV – holds that home prices have leaped upward over the past year and that the market is once again red hot. Another view of the market holds that while prices have climbed a bit over the past few months, home prices are still a step below where they were a year ago. Who’s right? It all depends how you do your counting. The optimistic appraisal of the market comes (no surprise) from the Canadian Real Estate Association. It arrives at its numbers by averaging all the sales of existing homes and properties done through the Multiple Listing Service (MLS) in a given month. The less rosy assessment comes from the Teranet-National Bank House Price Index. It tracks repeat sales of houses in six key cities across Canada.

The difference between the two approaches sounds trifling, but, oh, how it changes your perspective. According to the CREA numbers, the average price of a home in Canada jumped to $341,079 in October from $282,583 a year earlier. That works out to a 21% increase, which should give every homeowner in Canada a shiver of orgasmic pleasure. In contrast, the Teranet-National Bank index provides the financial equivalent of a cold shower. The index doesn’t show anything close to a 21% increase. In fact, it says that Canadian home prices were down 1.8% in September from the same month a year earlier. (The Teranet figure is from September because it takes longer to collect the underlying data than it does to collect data for the CREA survey.)

If you’re contemplating a major real estate decision, you should take the time to understand why two reputable surveys can come to such different conclusions. The CREA survey is good for measuring sales activity and it is packed with information, especially at the local level. Unfortunately, it’s flawed when it comes to taking the pulse of the nationwide housing market, because the mix of homes sold through MLS nationwide can jump around from one month to the next. If luxury homes in Vancouver dominate the sales mix this month, prices may appear to have jumped. On the other hand, if low-priced starter homes in Saint John are the property choice du jour, prices may appear to have slumped. The swing in the mix from month to month means that you can fall into the trap of comparing apples to oranges. The Teranet-National Bank index avoids that problem. It tracks only homes that have previously been sold and it compares each sale price to the previous price for the same property, so you’re always comparing apples to apples.

To my mind, the Teranet-National Bank index provides a more realistic picture of how prices are moving than CREA does. It isn’t perfect, mind you. It measures activity in only six cities (Halifax, Montreal, Ottawa, Toronto, Calgary, Vancouver). Still, it’s the closest thing we have to a reliable measuring stick for what’s happening to the prices of the homes we live in. And right now, it’s suggesting the national real estate boom is a lot less boom-like than you think.

Award-winning business writer Ian McGugan blogs daily at financialpost.com

E-mail: imcgugan4@gmail.com

Posted via web from Toronto Real Estate News | Blog

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About Tariq Sultan
Dear Readers, I am a dedicated Toronto, Ontario based real estate professional who has been successfully meeting and exceeding the needs of his clients for past several years. I am actively involved in the insurance, financing, and mortgage industry. Real estate is not only my career – it is my passion. I strive to continuously provide my clients with exceptional service to ensure they are fully satisfied when it comes to their real estate needs. For any real estate related inquires contact me today, I will be happy to assist you. Best wishes, Tariq Sultan

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