New index shows housing market heating up again

Canadian Real Estate Association says statistical model weighs several factors

Canada's realtors have a new way to test the housing sector and, based on the first set of results, the market is showing signs of heating up again after posting its first price increase in two months.

The MLS home price index was up 5.2 per cent in January from a year ago, and 0.27 per cent from a month earlier, based on the five markets surveyed. For now, only Calgary, the Fraser Valley in B.C., Vancouver, Montreal and Toronto are included in the survey, covering about 50 per cent of the total Canadian real estate market.

"The introduction of the (index) will provide clients and realtors a more timely and accurate gauge of home values in a number of major markets across the country," said Gary Morse, president of the Canadian Real Estate Association, which represents 100 boards across the country.

CREA says the new index uses a "sophisticated statistical model" that takes into account quantitative measures such as the number of rooms a home has and qualitative measures such as whether it has a finished basement. It also will consider location, measuring proximity to schools, hospitals and even golf courses, when comparing prices. The index will divide the information into different categories that include single-family homes, which are split into one-storey and two-storey homes, townhouse or row units and apartments.

The Ottawa-based group also will continue to release its traditional monthly statistics that are based on average price by taking total value and dividing by sales.

Gregory Klump, CREA's chief economist, said the new index provides a more accurate way of measuring the housing market.

"Changes in average price and median home prices are open to misinterpretation, since they can swing dramatically based on changes in the mix of home sales," he said.

The five boards involved in the project, along with CREA, started working on the project in 2009 and partnered with real estate research firm Altus Group to come up with the index. It faces competition from the Teranet-National Bank Price Index but is expected to get its results out on a more timely basis. Teranet's most recent statistics are for November, while CREA's cover January data. Teranet's index, however, represents 11 cities, while the MLS index takes in just half the Canadian market.

CREA says it hopes to expand to 16 boards by 2013, which will represent 70 per cent of Canadian housing.

The first set of results from the MLS index shows the housing market did rebound after a poor finish to 2011.

Overall, the MLS index was up from a year ago in all five of the markets surveyed, led by Toronto, which rose 7.6 per cent. All categories of housing were up, but the strongest showing was in two-storey homes, which rose 6.7 per cent from a year ago.

"While home prices remain up compared to one year ago, price growth from one month to the next has been slowing, causing year-over-year gains to shrink, and prices are generally expected to continue to stabilize this year," Morse said.

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