The Toronto Real Estate Board (TREB), Canadian Real Estate Association (CREA) and four other major real estate boards across Canada have developed a new system to measure and provide clarity on home prices and home price growth: the MLS Home Price Index (MLS HPI).
The MLS HPI is calculated using a sophisticated statistical model that is a hybrid of both the repeat sales and hedonic price approaches. The MLS HPI takes into account a home’s quantitative attributes (e.g. the number of rooms it has, square footage, etc.) and qualitative attributes (e.g., whether it has a finished basement, a view etc.).
The MLS HPI approach provides a less volatile measure of price than averages and medians, which can swing dramatically in response to changes in the mix of home sales from one time period to the next.
Each month, there will be two key outputs published using the MLS HPI:
- A series of price indices – The MLS HPI price indices work in a similar fashion to the Consumer Price Index (Canada’s measure of consumer price inflation). The indices have a base month/year of January 2005, where the indices are equal to 100. In January 2012 TREB’s composite HPI was 143.6. This means that the composite price index grew by 43.6 per cent between January 2005 and January 2012. On a month-over-month basis, TREB’s composite HPI was up by 0.28 per cent compared to December 2011 and also up by 7.6 per cent year-over-year in comparison to January 2011.
- A series of benchmark home prices – The MLS HPI has also been used to establish benchmark homes down to TREB’s Community level of geography for major home types including single family (detached and attached), townhouses and apartments. A benchmark home is composed of a set of attributes typical of homes in the area where it is located, and remains constant over time. This allows for an apples-to-apples comparison of price over time.
In the coming months, TREB will publish an increasing amount of data and analysis based on the MLS HPI in its monthly Market Watch publication in a new section called “Focus on the MLS Home Price Index.” Eventually, the MLS HPI will become TREB’s headline price number for release and reporting. However, traditional average and median calculations will continue to be published in the Market Watch.
“The Toronto Real Estate Board is extremely excited to be launching the MLS HPI. This new approach will provide clarity for the consumer and prove to be a major improvement over any other method to measure home prices and home price change available in the marketplace today. I look forward to discussing the many benefits and uses of the MLS HPI in the coming months,” said TREB president Richard Silver.