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A week after a report showed the price of an average house had soared to a record high, an alternate report suggested Wednesday prices have in fact declined for five consecutive months.

Canwest News ServiceA week after a report showed the price of an
average house had soared to a record high, an alternate report suggested
Wednesday prices have in fact declined for five consecutive months.
 
The Canadian housing market is beginning to look like a large jumbled puzzle. A week after a report showed the price of an average house had soared to a record high, an alternate report suggested Wednesday prices have in fact declined for five consecutive months.

Both sources are respectable, and their data accurate. But different methodology has led to a discrepancy between the figures. So where does the Canadian housing market stand?

Economists and those in the real estate industry believe conditions fall somewhere in the middle.

The price of a Canadian home was down 6.7% in April from a year earlier, the relatively new Teranet–National Bank House Price Index showed Wednesday. It was the fifth consecutive month of yearly decrease and caused the index to be down 8.9% from its peak in August. Home prices in Vancouver were down 10.9% from April last year, while prices dropped 9.8% in Calgary and 7.6% in Toronto. On a positive note, prices were up 2.4% in Montreal, 0.6% in Ottawa and 0.2% in Halifax.

But the data are in strong contrast to Multiple Listing Service figures released by the Canadian Real Estate Association on Monday last week.

The MLS figures showed the average national home price for May was up a robust 16.4% from January, setting a record high of $319,757.

Other indicators have thrown a few spanners in the works. The Organization for Economic Cooperation and Development said Wednesday Canadian house prices fell 11% in the first quarter, while Statistics Canada's index on new home prices, released at the beginning of the month, showed prices in April had fallen 3.2% since hitting a record high in September 2008.

With the economy in recession and unemployment increasing, Millan Mulraine, an economics strategist at TD Securities, said it was hard to justify a rise in house prices, as suggested by the CREA survey. But he was not convinced prices had fallen as sharply as the Teranet-National Bank survey had found.

"I would suspect that somewhere in between is the true state. If anything, I think it would be more on the negative side," Mr. Mulraine said. He said the discrepancy between the two sources was likely due to sampling and methodology differences.

The Teranet-National Bank figure is calculated by using the sale prices of homes that have been sold at least once before, a method designed to smooth volatility in the reading. The CREA figure is the average sale price of all homes sold through the MLS. The figure can be skewed by the mix of homes that were sold with the location, size and type of home all impacting price.

"You can't argue with the accuracy of the number, but you can argue that the number misrepresents what's happening in the marketplace if something out of the ordinary is happening," said Phil Soper, the president and chief executive of Royal LePage Real Estate Services Ltd.

He said home prices had not changed much since January, but seasonal factors skewed the data when comparing it on a monthly basis. For instance, many of the homes sold over the winter were distressed sales as a result of the recession, which artificially lowered the average house price compared with the return to normalized activity over spring and summer. Compared with a year ago, the CREA data showed the average house price was largely flat.

Paul Ferley, an economist at RBC Capital Markets said housing start activity continued to suggest weakness in the market. However, he said the market was close to a trough and poised for improvement.

"Our view is both Canadian and U.S. economies return to positive growth in the second half of this year and with that I think it should provide some relief to housing markets in both economies," Mr. Ferley said.

Alia McMullen, Financial Post  Published: Wednesday, June 24, 2009

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