Average Canadian home price falls 10% in year to October

vista · 发表于 2008-12-15 12:13

A quick glance at the latest figures from the Canadian Real Estate Association (CREA) indicates that in October the average Canadian home price was 10% lower than it had been a year earlier. But this figure is only weighted by the relative sales volumes in each city. Thus the number becomes a less-useful guide to real estate trends when, such as today, markets across the country are experiencing significant fluctuations.

"The conventional national average price calculation is subject to compositional changes," says Gregory Klump, chief economist at CREA. "This year, the national average price is being weighed down by the fact there are far fewer transactions in higher-priced markets in B. C. than there were last year."

CREA also publishes weighted house prices that take into account the types of properties being bought and sold.

"The weighted average price compensates for compositional changes. For that reason, the weighted average better measures average price trends compared with the unweighted average," Mr. Klump says.

TD Economics launched its weighted home price index this week, and explained why this new measure is a more useful guide for home buyers and sellers.

"If you have fewer transactions at the high, expensive end, that tends to pull down your average, and vice-versa," says Pascal Gauthier, economist at TD Economics. "We weighed these average prices by the housing stock, which doesn't tend to change very much over time, to control for these fluctuations in sales."

But the weighted index is, nevertheless, pointing to a softening in the Canadian housing market. "What it tells you is that home prices in Canada are down about 4% or 5% -- which is about half what the other measure is showing," Mr. Gauthier says.

"Clearly, home prices have been on the decline, particularly in the U. S., and it's legitimate for Canadians to look at that and wonder whether or not this kind of correction is going to happen in Canada," he said. "What we typically point to is that our real estate market is really going to follow the economy here. No more, no less, which means that, in the next couple of years, there will be weak performance ... just because the economy is basically going into a recession."

A separate report on real estate trends published by Scotiabank agrees that the economic downturn will continue to weaken house prices.

"There is further downside risk to home prices in Canada, especially in light of reduced growth and employment prospects," the report said. "We expect, however, that the correction in national average prices from their late-2007 peak will probably be in the range of 10% to 15%, well below the ongoing U. S. retrenchment."

Mr. Gauthier said that's because the drivers behind house price declines are very different in the U. S. and Canada. "We're not looking at the same kind of scenario where in the U. S. the housing crisis led to a financial crisis, which then led to an economic recession."

In addition, the Scotiabank report authors said, "Much of this [price] realignment will occur in Canada's three westernmost provinces, and will leave intact most of the significant price appreciation of recent years."

While indexes can make interesting or alarming reading depending on your situation, they remain just one source of information about the housing market.

"We always say -- and it's not just a cliche, it's definitely true -- that real estate is local, local, local, so that matters more than anything else," Mr. Gauthier said. "But it [the weighted index] gives people a good backdrop ... They can gauge a sense of how much appreciation they can get if they're a seller, and if they're a buyer how much bargaining power they have coming into these transactions."

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Average Canadian home price falls 10% in year to October

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