Edmonton Housing Bust

A couple weeks back I took a look at price indexes, and someone pointed out there was an organization in Canada that was doing an index much like the Case-Shiller index in the States. So we’ll be taking a bit of a look at that today, and for those interested in getting it straight from the horses mouth, you can check it out at housepriceindex.ca.

Unlike the index of house prices I did where I just took the average residential prices, this one only compares “sales pairs” where they compare the sale prices of identical properties over time, and yields a truer result. For a better explanation click on the “Methodology” link on their site, complete with examples. Here is a chart of their indexes for the six markets they follow, as well as a composite of those six.

You’ll notice that unlike Case-Shiller, they set their index point at June of ’05 rather then January of ’00. For the sake of comparison I will change that point back to January of ’00, because I think that gives a bit more perspective to the time line. So here is a look at that same data with with the index point adjusted.

As you can see, the chart still looks much the same as time progresses. For comparative purposes, now I’m going to take a quick look at how this index relates to the average price index I did earlier by charting the shared markets. Since theirs is a 3-month moving average, I’ll include both the monthly average residential price as well as a 3-month moving average of it, which just just kind of smooths out the figures.

For the most part it seems that the Canadian-HPI trails the residential average by about 4-6 months, which while prices were rising left it a bit below, but now that prices are falling its now even or the higher of the two.

You can kind of read into this what you will, but you can see that obviously there is a relationship between the figures as they do track together. So while it was certainly a quick and dirty price index that I compiled, the data provided was actually somewhat useful… but like I said earlier, the HPI by Teranet is by far the better of the two.

In my next entry (probably Thursday) we’ll compare Case-Shiller’s US index with Teranet’s Canadian House Price Index, and see what relationship those two may or may not have.

A popular home price index that has become quite popular of late is the Case-Shiller index. There are many variations, but the basic premise is you take the home price as of the first quarter of 2000, and give that price a value of 100. Then as prices fluctuate, they will be given values relative to that. So, for example, if the price as of January 2000 was $200,000… $200,000 = 100, $250,000 = 125, $300,000 = 150, $400,000 = 200, so on and so forth.

As this has become a very popular in the US of late, and I hadn’t seen it done for Canadian cities, I decided to take a shot, collected data (average MLS residential resale price, or average SFH resale price in Vancouver’s case) on eight of our larger centres and compiled it into an index based loosely on Case-Shiller, and here are the results… you can click on the picture for a larger image to get a better look…

All figures are through November ’08. You can see that by this measure, Edmonton actually had the biggest run up of prices in the country (though, apparently Saskatoon may have out did them, I could not find complete data for Saskatoon, so they are not included), and peaked earliest.

I was a bit surprised to see Vancouver was toward the middle of the pack, and Toronto actually had the most gradual growth of any. With all the verbiage flying around about those two markets, I would have expected them higher up. That’s not to say there wasn’t a big run up in Vancouver, just it was not as extreme as places like Edmonton, Regina, or even Calgary.

Montreal, Ottawa and Toronto all seemed to have more consistent numbers. Winnipeg saw a bit of a bubble in ’07, then a bigger one in ’08, but fortunately for recent buyers in that city they were a bit late arriving, so when the economic troubles hit, their fall doesn’t look to be nearly as bad as what’s likely to hit Regina, who experienced explosive price increases that rocketed them from the bottom of the chart in early ’07, to second from the top in 12 months.

With even the cities with more moderate figures experiencing very significant declines in their own prices, it should really put a scare into recent buyers in markets such as Edmonton and Regina, where prices exploded.

Here are the peak values each city realized:

Edmonton = 292.98
Regina = 277.17
Calgary = 253.98
Vancouver = 239.60
Winnipeg = 232.08
Montreal = 207.74
Ottawa = 192.47
Toronto = 173.52

In the days to come I’ll also take a look at the respective declines from peak, as well as comparing these results with those in the U.S… the similarities are really quite striking.