What is going on with Vancouver home prices in 2012? Well, it depends on who, or rather which measure of prices, you ask. The chart below shows four measures of home prices: the MLS® Average Price, the MLS® Median Price, the MLS® Home Price Index (HPI), and the Teranet-National Bank Home Price Index.
As is plain to see from the chart, the MLS® average price for the Real Estate Board of Greater Vancouver (the price that the BCREA reports each month) diverged sharply from other measures of Vancouver home prices sometime in 2010. To see why this happened requires a little bit of statistics. The average price is calculated simply by summing sales volume and dividing that total by the number of units sold. If sales are distributed normally so that sales are reflective of the existing housing stock, then the average price will be similar to the median, which is simply the midpoint of all sales in a given period. However, if a disproportionate number of sales occurred at an extreme end of the distribution, the average will be skewed in that direction. This is exactly what happened through the first half of 2011, as seen in sales activity of homes priced above one million dollars.
Not surprisingly, as sales at the high end have slowed, the distribution of sales has normalized and the average price is no longer being skewed toward the high-end of the market. The fact that the average price is susceptible to changes in the distribution of sales is exactly why other measure of prices that are unaffected by the distribution of sales were developed. The MLS® HPI is estimated based on the individual attributes of homes (such as number of bedrooms, number of bathrooms, geographic area, etc.) and so is a better measure of price changes in similarly appointed homes. Similarly, the Teranet-National Bank home price index uses a repeat sales methodology that compares the change in prices of homes that have been sold at least twice. Looking at these measures of Vancouver home prices we see neither the extreme run-up in prices that occurred in early 2011, nor the recent decline.
When trying to get a handle on any market, it is best to use as diverse an amount of information as is available. Looking at the four major measures of Vancouver home prices we would conclude that while prices are moderating in part because of slower sales activity, much of the decline in the MLS® average prices is due to the normalization in the distribution of sales.