By: Larry MacDonald
When is the Canadian media going to stop headlining grossly misleading data published by the Canadian Real Estate Association (CREA)? Case in point: on December 15, the Canadian Press cited CREA data that house prices had dived 10% during the year to November.
That 10% “decline” represents not a pure price decline but a change in the mix of houses sold. CREA is aware of this and just recently began publishing another estimate of house prices that supposed corrects for this distortion. This measure shows a 4.7% decline, as the Financial Post reports.
Yet, even this is suspect. I just finished doing a few posts on a less distorted method called the Repeat Sale Price Index (RSPI). It indicated house prices were 3.3% higher over the year to October.
The RPSI is not perfect but would seem to be the least biased. It is the method now widely followed by the U.S. media (i.e. the Shiller-Case indexes). And the New House Price Index published by Statistics Canada shows a year-over-year increase in October of 1.5%, closer to the RSPI than CREA.
I think it is a rather huge disservice to the Canadian public to disseminate such misleading statistics. If gives an overly negative picture of the housing market. It may scare house hunters away from the market and lead house sellers to list at a lower price, creating a self-fulfilling prophecy. Lies, damned lies, and statistics, goes the saying.
10 Responses to “ Myth of falling house prices (II) ”
An interesting test of the RSPI would be to see if five-year figures matched the compounded one-year figures. By this I mean calculate the RSPI for five years by using houses sold both now an five years ago. Then do five separate one-year versions and compound the results. If the two calculations don’t match, then the RSPI is suspect. Presumably old data exists to try this. I’d do it if I had access to the data.
By Michael James on Dec 18, 2008
” It may scare house hunters away from the market and lead house sellers to list at a lower price, creating a self-fulfilling prophecy. Lies, damned lies, and statistics, goes the saying.”
Perhaps the media blindly quoting price rises when economic times were better caused as much or more damage than reporting larger price drops now.
Prices are too high and are coming down. Don’t blame the media for what the market will take care of all on its own.
By jesse on Dec 18, 2008
Fascinating.
I’m reading as much real estate news as I can these days. When 800k Vancouver houses are so totally out of range of decent incomes (80k/year), house prices must be overvalued…
BUT if the statistics the media are quoting aren’t accurate…that sure does paint a different picture of the current market. That doesn’t fix the imbalance, but it sure would temper people’s negativity.
By Colin on Dec 18, 2008
It’s difficult to believe that housing sales and prices are not declining.
I purchased my house in January of this year in the (905) area. There are a very large number of houses for sale in my area in the Oct-Nov timeframe, and most were sitting, and sitting and sitting. The house down the street from me is identical and in the same condition as mine, but has been listed at 6% less than I paid for mine and has been unsold since September.
Despite headlines, I SEE more listings, less sales, and lower prices in my area.
By Steve on Dec 19, 2008
I find it very strange to see someone suggesting that CREA is biased to the downside.
By Potato on Dec 19, 2008
Michael J
You can contact them through their website (seel link in my previous posts) and who knows, with your math background, they might be interested in having you do some tests.
Colin, Steve
Prices are indeed coming down according to the RSPI, compared to previous months or quarters. But so far not on a year-over-year basis — except for Calgary. Given the momentuum, it could show year-over-year declines in 2-4 months. But the pace is nowhere near as rapid or deep as suggested by widely quoted meaures.
LM
By Larry MacDonald on Dec 19, 2008
Potato
There is no suggestion the bias is always to the downside, just that the widely used method is inaccurate per se. If we go back into the boom years and compare it with the benchmark, i.e. RSPI, we may find there was an upward bias.
LM
By Larry MacDonald on Dec 20, 2008
Unless you are selling this is a non-issue . If you are then you get less for your house and the one you buy will be less ( moot point ) . But I agree with Larry BIGTIME on the media negativity . To sell papers they find the most negative facts and figures to post in an article . We have been through this before and things will get better . This is a time of hope and change . Get with the program media !!!!
By Chris on Dec 20, 2008
But Garth Turner is touting his book and another gloom and doom book to come soon. He can’t taking advantage of the bad headlines can he?
Keep up the good work Larry, I’ve been reading you work for ages. A very merry Christmas to you and your family!
By James on Dec 23, 2008