Published in the Financial Post on Aug 14th, 2017 by Garry Marr
Toronto’s existing homes market is seeing a massive decline in prices — or is it? The latest numbers from the Teranet-National Bank Composite House Index look like they tell a different story.
The index, released Monday, shows Toronto prices actually rose 2.1 per cent from June to July and national prices were up two per cent from a month earlier. The Toronto results, at first glance, appear out of sync with Toronto Real Estate Board results which show prices have declined almost 21.5 per cent from a peak hit in mid-April before the province put in measures like a foreign buyer tax to cool the market in and around the city.
But Marc Pinsonneault, an economist with National Bank, said his index needs to be examined more closely and, as his firm went out of its way to explain in a note, that the index reflects a three-month rolling average, or what it calls a ‘smooth index’. The 2.1 per increase was an average of May, June and July and therefore not fully reflective of the falling Toronto market.
Monday, it also released a so-called unsmoothed index, which offers a better snapshot of July, comparing it to June. The result was 0.3 per cent decline for all dwellings in the Toronto region.
“When (the index) was built, people wanted to soften the monthly fluctuations,” said Pinsonneault, adding the main index number might not reflect a quickly declining market like Toronto is now seeing. The Teranet-National Bank index also focuses on final sales while TREB initial numbers focus on agreements to purchase – the 30-60 days it might take to close a sale creates a lagging effect.