Luxury Vancouver homes slump along with those in pricy areas
Trend drove 16.7 per cent drop in price for all detached homes in Metro Vancouver in August
Metro Vancouver is enduring a slump in sales for single-family homes, particularly those that are more deluxe or in pricier parts of the region.
The result, according to Real Estate Board of Greater Vancouver (REBGV) data, is a 16.7 per cent monthly drop in the region’s average detached-home sale price, to C$1,470,265 (US$1,138,629), in August.
A different yardstick for measuring home prices, however, shows the region’s price for a single-family home has not dropped much at all.
The Home Price Index (HPI)’s benchmark price pinned the price of a typical detached home in Metro Vancouver in August at C$1,577,300 (US$1,221,533), down C$1,000 (US$774) or a fraction of a percentage point, from July.
“You can have the average price jumping up and down like crazy just because the mix of homes being sold is always changing,” REBGV president Dan Morrison told Business in Vancouver.
Discussion of how to measure home values has been rampant on social media with the key question being what is the difference between the average price and the benchmark price?
Determining the average price is easy. It is the quotient derived from dividing the amount spent on single-family homes by the number of homes sold. The result is that it falls precipitously when there are fewer home sales in expensive Lower Mainland neighbourhoods and more sales in less expensive suburbs.
Regionwide, in August, there were 715 detached home sales, or 33.6 per cent fewer than in July.
But, while sales were down 50.4 per cent to 61 in Richmond, 43.5 per cent to 61 on the west side of Vancouver and 37.4 per cent to 62 in North Vancouver, there was a 7.1 per cent rise in home sales, to a region-leading 135 transactions in the Maple Ridge and Pitt Meadows region.
Detached homes in Maple Ridge and Pitt Meadows sold on average for C$731,000 (US$566,144), which is far less than the average prices in Richmond (C$1.7 million or US$ 1.3 million), North Vancouver (C$1.57 million or US$ 1.22 million) and Vancouver’s west side (C$3.55 million or US$2.75).
Sales also dropped a comparatively meagre 6.5 per cent to 71 on the Sunshine Coast, where the average home price is C$469,877 (US$363,906).
So the decline in the average Metro Vancouver detached home price has more to do with which suburb is in demand than with the value of any specific home, Morrison said.
He added that his statistics show that high-end homes are in a slump regardless of where they are in Metro Vancouver.
“The HPI benchmark price is complicated, but it gives a price for the typical home in a community,” said British Columbia Real Estate Association chief economist Cameron Muir, who prefers that measure to the average price.
“It looks at the number of bedrooms and bathrooms as well as the lot size, square footage – all of those things are accounted for within the model.”
The HPI benchmark price is much like the consumer price index, where the change in the cost of living is measured by taking into account a range of factors.
It also fuses two economic pricing models.
One of those models, Muir said, is called the hedonic price index. That model identifies features in a home that contribute to its value.
He added that the second model that helps determine the HPI benchmark price is called paired pricing. That is an appraisal technique used to determine the value for each home feature, such as a view of the ocean or a third bedroom. Prices for homes that are equivalent in all aspects except for the feature in question are measured. The difference in value is deemed to be the value for the feature.
Using the two pricing models enables economists to compare equivalent homes, Muir said.
“If you want to know more than that and to really get into the weeds, go online and look at the methodology for the benchmark price and at all the people who have vetted the model and said it was a good thing,” Muir said.
“Then go compare that to [armchair critics on] your Twitter feed.”