Toronto Real Estate: New Tool measures price of home

February 17, 2012 -- As President of the Toronto Real Estate Board I’m excited to announce to you the consumer that a new system to measure and provide clarity on home prices and home price growth was launched on February 6th.

TREB, along with the Canadian Real Estate Association (CREA) and four other major real estate boards across Canada have developed a new system called the MLS® Home Price Index (MLS® HPI).

The MLS® HPI is calculated using a sophisticated statistical model that takes into account a home’s quantitative (e.g., the number of rooms it has) and qualitative (e.g., whether it has a finished basement) features.

The MLS® HPI approach provides a less volatile measure of price than averages and medians, which can swing dramatically in response to changes in the share of very expensive or inexpensive home sales from one time period to the next

Each month, there will be two key outputs published using the MLS® HPI:

1. A series of price indices -- The MLS® HPI price indices work in a similar fashion to the Consumer Price Index (Canada’s measure of consumer price inflation). The indices have a base month/year of January 2005, where the indices are equal to 100. In January 2012 the TREB’s composite HPI was 143.1. This means that the composite price index grew by 43.1 per cent between January 2005 and January 2012.

2. A series of benchmark home prices -- The MLS® HPI has also been used to establish benchmark homes down to TREB’s Community level of geography for major home types including single family (detached and attached, townhouses and apartments). A benchmark home is composed of a set of attributes typical of homes in the area where it is located, and remains constant over time. This allows for an apples-to-apples comparison of price over time.

So look for in the coming months, an increasing amount of data and analysis based on the MLS® HPI in our monthly Market Watch reports. This reporting section will be called “Focus on the MLS® Home Price Index”. Eventually, the MLS® HPI will become TREB’s headline price number for release and reporting. However, traditional average and median calculations will continue to be published in the Market Watch.

This new approach will provide clarity for the consumer and prove to be a major improvement over any other method to measure home prices and home price change available in the marketplace today. I look forward to discussing the many benefits and uses of the MLS® HPI in the coming months.

So I invite you to learn more about the MLS® HPI at www.homepriceindex.ca.

Richard Silver is President of the Toronto Real Estate Board, a professional association that represents 32,000 REALTORS® in the Greater Toronto Area.

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