The MLS® Housing Price Index (HPI) is coming to Calgary in February, as part of a nationwide rollout involving boards in Canada’s largest cities.
This new monthly price measure will enable Realtors to better determine real price changes.
Many Realtors have experienced a scenario where the monthly average price increased by five per cent, and your clients say, “Prices increased, shouldn’t my house be worth more?”
The five-per-cent increase is often misinterpreted, and could be caused by a number of factors including a rise in luxury home sales. As average prices can be skewed by the composition of sales, it does not reflect price trends based on the type and features that a home provides.
The index will help as price trends will reflect changes caused by individual’s willingness to pay for home attributes.
What does this mean for REALTORS® and our Clients?
By using MLS® HPI, we will be able to offer more comprehensive and purer data than ever before – data you can use for property comparisons, understanding future price trends and estimating current market values. Most importantly, it brings more value to our clients.
So how does it work?
The MLS® HPI is calculated using a sophisticated statistical model that estimates home prices based on their quantitative and qualitative features, including:
• Number of rooms above the basement level
• Number of bathrooms and half-bathrooms
• Square footage for main living and basement areas
• Whether it has a fireplace and/or finished basement
• Lot size
• The age of the property
• How the home is heated
• Foundation, flooring, siding and roofing types
• Whether the property has a waterfront or panoramic view
• Whether the property has been sold previously
• Proximity to shopping, schools, hospitals, police stations, churches, sports centres, golf
courses, parks, and transportation (including train stations, airports etc.)
Upon valuating these features or attributes the index and the benchmark price are formulated.
MLS® HPI Benchmark
A ‘benchmark home’ is one that shows a set of attributes typical to the area/sub-market where it is located. Since ‘typical’ homes are different from one area to the next, their descriptions differ between areas.
A complete set of benchmark home attributes tracked by the MLS® HPI in each area can obtained by your realtor. The typical home for each community will remain constant over time, indicating that attributes will not change.
For example, the following table outlines some of the attributes that comprise a typical home for each of the following communities:
|Property type||2 storey||2 storey||2 storey|
|Age of property||16||16||50|
|Above ground bedrooms||3||3||3|
|Number of covered parking spots||2||2||2|
|Number of full baths||2||2||3|
The MLS® HPI benchmark price is calculated by taking the values determined by the model and applying it to these attributes for the ‘typical’ homes in each area. The value of these attributes is generated based on geographical groupings where the sales that have occurred are similar to each other, i.e. “homogeneous”.
Continuing with the above example, the following data would also be available for each community.
|Benchmark Price||% change one month||% change six months||% change one year||% change three years|
|Mount Royal – two storey||$1,320,774||0.69||-5.23||-4.61||-7.05|
|Hawkwood – two storey||$410,286||1.27||-0.63||4.61||-0.58|
|Edgemont – two storey||$477,760||-0.58||-2.30||4.29||3.03|
As noted in the table above, the price of a two-storey home and its attributes vary from each community as do the trends in pricing. This type of monthly summary report will include each community by property type and will be available on our website after the HPI launch in February.
How REALTORS® can use this model
Let’s say we have a listing in the Hawkwood community, and the home we are selling represents the ‘typical home’ with a current benchmark price of $410,286. Our client purchased this home three years ago for $415,000 and would like to sell it for $440,000, as he heard that average prices have been increasing in his neighborhood.
By using the benchmark price as starting point, we could indicate that the typical home did have some positive price movement recently and has picked up in the past year, but the pricing still remains slightly lower then what it was three years ago. As such, it would be difficult to get the $440,000 he is looking for. Further to this, we could explain that his home represents the typical home, and does not have any additional features that would warrant a higher price.
The House Price Index will not be the only tool we use to evaluate real estate but it will be used in conjunction with evalaution technics as well as local experience in the neighbourhoods.
More information about the MLS® HPI will be available soon!