Tracking Toronto House Prices. Another Tool for Determining Toronto House Values
There's been a lot of talk lately about whether or not Toronto Real Estate is overvalued. Statistics have been sliced and diced every which way, to support differing opinions of value, relative to potential rental income, or buyer affordability. At the risk of putting you to sleep with statistics, here's another point of view. Consider yourself warned, it's pretty technical.
The Teranet–National Bank House Price Index™ doesn't attempt to prove value. Instead, they do a great job of determining how real house prices have changed over time. While Toronto Real Estate Board uses all sales to measure average and median prices, T-NB tracks only repeat sales, using data collected from public land registries. All dwellings that have been sold at least twice are considered in the calculation of the index. This is known as the repeat sales method.
The starting point for their index was in June 2005, and all markets were given a value of 100. All price movement is compared against that base line. For example, an index value of 130 means that home prices have increased 30% since June 2005.
So why is the Teranet-National Bank Index useful?
It really is a more precise tool for measuring price change. What they offer is a clear picture of price movement on resale homes that were sold in arms-length transactions, with no change in the type of property, for example after complete renovations. They also eliminate conspicuous data error, distress sales and high turnover frequency (biannual or higher). New homes, which often sell at a premium are excluded as well. Toronto Real Estate Board doesn't analyze this kind of 'exclusive' data.
For those of us who make a living by understanding movement in the Toronto Real Estate market, it's a valuable tool, especially when it differs from the conventional yardsticks.
By the way, the T-NB September Index for Toronto homes was about 126, or 26% higher than house prices in June 2005. Toronto Real Estate Board statistics are close enough, measuring a 20% increase in the same period. It doesn't prove a point, but with annual price increases in the 4% to 5% range, it could make you ponder that our house prices really are reasonable.
Using the T-NB index also let's us compare Toronto Real Estate to other major Canadian centers, 132 for Ottawa, 156 for Calgary and 154 for Vancouver. I don't expect most people will want to dissect the details behind this post. You shouldn't spend your time poring over statistical reports. But when you're about to buy or sell a house it's good to know someone who does.
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