Imagine two car lots in the same town. One handles only Ferraris and Maseratis. The other sells Toyotas and Fords. The average price in the first lot is $500,000. In the other lot, where 80 per cent of the local residents buy, cars are priced at an average of $30,000.
Therefore, the average price of a car in town is $265,000.
That’s the reasoning behind much of the media and analyst coverage of Metro Vancouver* house prices, which has become so widespread, even many residents think it takes more than $1 million to buy a home.
Typical is a scary report from BMO Capital Markets in June. “The average priced home in (the city of) Vancouver is now 11.2 times family income, more than double the ratio of a decade ago.” And “it is a market that is subject to an elevated risk of a correction,” the report intones, hinting that prices could collapse.
Yet prices for the vast bulk of buyers in the Metro Vancouver area are already half the level that has the media and analysts so worked up.
Knock out sales of $1 million plus — most in three areas — and the actual detached house price is under $600,000 and the real condominium apartment price averages less than $315,000.
|Average vs. Median House Prices|
|Average home price:The midpoint of all house sales within a category.Median home price:The midpoint of sales prices where an equal number of properties were sold above and below this sales price.Benchmark home price:MLS estimate of the value of a “typical” home in a community, based on the most popular combination of features, e.g., age, size, number of bedrooms and bathrooms.House Price Index: Ongoing record tracking aggregate sales of similar homes. Teranet and the National Bank of Canada publish a monthly House Price Index for six cities including Metro Vancouver.
MLS has its own HPI which traces the price trends for detached, attached and apartment properties based on Jan. 2005 prices. Some highly populated areas have been broken down for more complete data.
The findings come in a recent study from Vancouver-based Urban Futures, which used Landcor Data figures to show how sales of high-end homes skew the market reporting. Landcor tracks all real estate transactions, not just those reported to the Multiple Listing Service (MLS).
The study segments the sales data into five quintiles representing equal sales in price brackets from highest to lowest. Considering the top quintile (top 20 percent of sales by value), which ranged up to $17.5 million, the average house price was a lofty $1.69 million — twice the average price for all sales.
But in the remaining 80 per cent of the market — where the typical buyer is found — the average price was $591,000, or 27 per cent below the overall average price.
Further, in 2010 the average selling price for all condominiums increased to $429,764. But this increase was in large part due to sales at the top of the market, where the most expensive condo sold for $17.5 million. This resulted in a 2010 average condo sale price for the top quintile of $904,338, while the average sales price for the remaining 80 per cent was only $311,069. (These are 2010 prices but Urban Futures notes the same ratio held true in the first quarter of 2011.)
The reality is that the majority of buyers can still find relatively affordable homes, with detached houses under $650,000 and condos for about half that price, as long as they’re outside the hot markets of the City of Vancouver, West Vancouver and Richmond.
Metro Vancouver home prices are the highest in Canada, but for the majority of buyers they are far below what most of the media suggest.
Read also “Housing Affordability Sensationalism — Enough Already!”