A new way of analyzing and illustrating real estate sales and trends is being rolled out in Greater Victoria today.
The Home Price Index is designed to deliver a more accurate and reliable picture of housing prices by tracking prices levels for a typical or “benchmark” home in a community.
Real estate watchers are used to seeing monthly statistics showing average and median prices in the region for properties sold through the Victoria Real Estate Board’s Multiple Listing Service.
But the local real estate board has cautioned for years that averages are easily skewed depending on the value of home sales. Last month, for example, 12 single-family houses sold for more than $1 million.
An average is calculated by adding up the prices and then dividing by the number of sales. A median is the mid-way between the high and low prices.
The benchmark year for a typical housing type is 2005. These will be broken up into categories of homes with specific areas.
This system shows home prices based on features in a home, said David Corey, executive officer of the Victoria board. A typical home will include quantitative features, such as the number of rooms and bathrooms, and its age, as well as qualitative features such as proximity to amenities and renovations.
The Victoria board will continue releasing the old data table, listing average and median prices, for the next few months so that people can compare the systems, said Maggie Kerr-Southin, board communications manager.
The index is already used by real estate boards in Calgary, Greater Vancouver, the Fraser Valley, Montreal, Toronto and the Canadian Real Estate Association. Vancouver Island’s board (largely representing the area north of the Malahat) will also be participating.
Cameron Muir, chief economist for the B.C. Real Estate Association, said the Home Price Index provides a “much more accurate picture” than averages and median prices. The old system is easier to misread.
“Average prices are subject to a lot of volatility, or what we call skewing. Any given month, you can have a whole bunch of luxury waterfront homes sell, and then the next month they don’t and it looks like prices have gone up and then fallen.”
The statistical model extracts the attributes of a typical home in a community and then assigns values to that and creates a benchmark price out of that, he said.
Ronan O’Sullivan, a 20-year realtor with Remax Camosun, said the introduction of the Home Price Index is good for both sellers and buyers. “This will enhance the way real estate agents approach pricing a home and how buyers structure their offers by using the more detailed and accurate statistical information the [index] provides,” he said.
Monthly statistics providing average and median selling prices “were often misleading and did little to help establish property values or market trend information,” said O’Sullivan. “Conventional wisdom in arriving at a value for a specific property is to compare the property in question to recent sales and current competing listings in the immediate neighbourhood.
“The rationale for comparing neighbourhood-specific properties goes to the “location-location-location” concept. Comparing properties in other areas without regard to the location differences could lead to incorrect estimates of value.”
The Home Price Index offers the real estate agent performing a home evaluation more precise neighbourhood information, said O’Sullivan. It is updated monthly and also allows for accurate side-by-side neighbourhood trend comparison by property type. It is also highly useful for agents acting for buyers in developing negotiating strategies for offers, he added.