Why are some articles saying prices are going down, and others saying that for the same product category, they’re not? How is that even possible? Whenever you read real estate reports, it is important to understand how the data used is interpreted by the author. With the high price points of Vancouver’s heated real estate market, conversations about predicting where property values will go next seems to have become a daily conversation wherever we go. In this video, I discuss the difference between the two common ways of measuring price points: Average Price vs. (HPI) Benchmark Price.
Are prices down, or not? Two ways to measure prices.
When looking at activity for a given period of time, the Average Price per unit is exactly that – an average of all of the sales for that period within a certain market segment.
Say you’re looking at condo sales for the month of July. That very expensive $13m Coal Harbour penthouse sale is going to be counted as part of the aggregate of all sales for that month. Of course, that will result in July seeing a high overall average price ($910k to be exact). The problem however, is that rare sales are, well, rare! They don’t happen every month and are not representative of the typical type of property one would encounter within the condo segment on the Westside.
Take August for example, the highest priced condo sale was $3.80m. Still not a typical property, but much less expensive than the previous month’s penthouse sale. August’s overall average condo price dropped to $794k. So by looking at this data, one could conclude that month-to-month, prices are have dropped a staggering 13%.
This above said, it would be quite inaccurate to base market predictions on averages that include non-typical products and therefore can easily be skewed. For this reason, the 5 largest real estate boards within Canada, including our very own Real Estate Board of Greater Vancouver, have developed what they call the ‘Home Price Index (HPI)’ or Benchmark Price. On its website, the REBGV describes it as follows:
“The HPI benchmarks represent the price of a typical property within each market. The HPI takes into consideration what averages and medians do not – items such as lot size, age, number of rooms, etc. These features become the composite of the ‘typical house’ in a given area. Each month’s sales determine the current prices paid for bedrooms, bathrooms, fireplaces, etc. and apply those new values to the ‘typical’ house model.”
In layman’s terms, what all this means is that what the HPI does is look at typical properties for each market segment, and then calculates the Benchmark Price change within. It eliminates non-typical factors that can heavily skew the data. Benchmark’s for Westside condos in July & August were $511k and $514k respectively – a minor, but encouraging month-to-month increase of 1%.
When it comes to making important housing decisions that affect your investment portfolio and lifestyle, be sure to understand the data. While no one can predict exactly what will happen next, being educated about what current trends and activities are can be a powerful tool in making smart choices. For weekly market updates and tips such as this one, make sure to like The Condo Agent on Facebook.