Teranet: Vancouver Real Estate Prices Drop 1.3% When “Unsmoothed”

Vancouver real estate prices hit a new all-time record, kind of. The Teranet – National Bank of Canada (NBC) HPI shows that home prices in Vancouver hit a new all-time record in February. However, diving a little deeper, shows that may have been a vanity print. Significant changes in the mortgage market, and declining sales led to a sudden drop that has yet to be reflected in the numbers.

About The Teranet-National Bank HPI

The Teranet-National Bank HPI is a different measure of real estate data, that relies on property registry information instead of sales. Many misinformed agents refer to this as a “delayed” measure, but that’s not the case. The use of registry data means that the information is “late” compared to the MLS, but it’s more accurate.

Using registry information means only completed sales are included. In contrast, the MLS uses just sales. In a hot market, few sales fall through, so the MLS is definitely a faster read. In a cooling market, sales can start to fall through, as some buyers look for a way out while prices drop. This is often not reflected in MLS data, since a transfer occurs 30 to 90 days after a sale. They each have their trade offs, and neither is better or worse than they other. If you’re really into housing data, it’s best to check both to get a real feel for the market.

Vancouver Real Estate Prices Reach All-Time High.. Sort of

Vancouver real estate prices moved higher for the tenth month in a row, kind of. The composite price in the city rose 0.42%, bringing annual gains to 15.79%. This is a new all-time high for the market, and almost double the national annual increase of 7.54%. This is using the firm’s smoothed data, however.

Source: Teranet-National Bank of Canada. Better Dwelling.

Smoothed Vs Unsmoothed

The HPI for Vancouver that’s published is done using smoothed data, which you want – most of the time. Smoothed data seeks to reduce fluctuations, by seasonally or cyclically adjusting the data so it’s easier to get a read. In this case, the the HPI is smoothed by averaging changes over the past three months.

Source: Teranet-National Bank of Canada, Better Dwelling Calculations.

Some people argue that seasonally adjusted data has outlived its usefulness. Mostly in cases where there are rapid changes in the environment, and you need a more immediate read. In this case, we’re looking for changes related to the new OSFI B-20 mortgage regulations. The Teranet-NBC index smooths out three months of data to get their index score.

This means we would be getting two sets of mortgage rules, pre and post stress testing. Stress testing reduces buying power by up to 20%, which would have a huge impact on Vancouver. Only 16% of the city’s population would be able to afford a mortgage on a “typical home,” post stress test. The unsmoothed numbers are  important to get a quick read on the impact here.

Vancouver Sees Prices Fall 1.3% In February

Vancouver home prices saw a decline in home prices when looking at “raw” and “unsmoothed” data. Home prices declined 1.3% on the unsmoothed index, a substantial single month decline. NBC analysts Marc Pinsonneault noted the raw data’s “retreat, coincides with a cooling of home sales as reported by the Real Estate Board of Greater Vancouver.” It appears the new mortgage, and higher rates could be doing exactly what they’re designed to do. It’ll just appear as surprising, and shocking data in two or three months. Work on your surprised face.

In the grand scheme of things, this decline is very small in contrast to the gains Vancouver has seen. In any normal month, this would be considered a one off, and largely ignored. After a significant change in mortgage qualification guidelines however, it’s worth noting. This also comes before BC’s new anti-speculation measures are in place. The latter will likely claim credit for the delayed data reporting you’ll see.

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Photo: Alex Costin.