Say you want to buy a home in an area that hasn’t taken off yet but could in the future, or you want to avoid buying in a market that’s overheated. If a house is $1.5 million in Vancouver West and a comparable house in North Surrey is $780,000, how can you compare the two markets?
House prices won’t let you. But a house price index will.
A house price index, or HPI, shows percentage changes in real estate values over time. The change is calculated on a base value of 100 set on a specific date. In other words, it’s all relative. (The thing it won’t show you is actual house prices.)
HPIs are great for comparing trends from market to market because everything starts from the same base value. The two HPIs in the news every month are The Teranet – National Bank HPI, which charts 11 urban markets across Canada, and The MLS® Home Price Index, which details price trends in resale homes listed on the MLS® for areas within Greater Vancouver and the Fraser Valley.
The Landcor Housing Price Index
Landcor Data has just introduced a new and more complete HPI for BC, and we’ll be featuring it regularly.
Unlike the MLS® HPI, the Landcor Housing Price Index includes all properties that change hands across BC: newly built homes, MLS® resale homes and private sales, so it covers the entire market, not just one segment.
The valuations are based on “a blender-full of data.” With access to BC Assessment data and other sources, Landcor bases its valuations on the qualities and features of each home and how much value home buyers place on them in the market.
These HPIs are a jumping-off point for the real estate industry to say, “Hey, what happened here and what can we do with it?” Realtors, developers and marketers will see an HPI trend in an area and try to nail it down by looking at sales volume, supply/demand, type of product available, price points and demographic information.
Here are some trends that HPIs have exposed. Click on the charts for full-size images.
Detached house mania
Throughout Greater Vancouver, house prices for the three housing types pretty much marched in step until after the 2008/2009 slump. Then prices for detached houses (green) left the pack behind.
Escalating prices for luxury homes in Vancouver West and Richmond soon buoyed up prices for all detached houses in the older, established areas within yelling distance of downtown Vancouver.
After a dizzying climb, these prices have recently flattened out, but it’s clear how talk of a bubble took hold.
Run-up without recovery
Where the blue line is on top, condos are in demand and their price has appreciated faster than townhouse or detached house prices.
However, the HPIs for Abbotsford and Maple Ridge show a big run-up before the market dip of 2009, without the recovery seen in other markets. The market could be saturated (and buyers might find bargains!)
The thing to remember is that HPIs are most useful for the bigger areas with consistent, high-volume sales. These are small markets, so there may not be enough data to tell the full story. A builder or developer considering a new project in either of these areas is going to dig deeper, and look at how many units were on the market, how they were priced and who was buying. That’s the kind of extra data that will reveal whether these are markets that will take off again in the near future.
We’ll feature the new Landcor HPI update on REW.ca every quarter. You’ll be able to see and compare price trends for new, MLS® resale and private sales throughout the Lower Mainland real estate market.