Apples-to-apples and home price comparisons

I like using Dawn dishwashing liquid. I also like getting it for the best price, so I comparison shop. I pay attention to how much is in the bottle, because a smaller bottle might be lower in price—but is it a better deal? To ensure an apples-to-apples comparison, I compare the price per milliliter.

It’s equally important to compare apples-to-apples when gauging home price trends. If you aren’t making an apples-to-apples comparison, how do you know if prices have gone up because homes have gotten larger and account for a bigger share of total sales?

Benchmark prices produced by the MLS® Home Price Index (HPI) are the only available way of making apples-to-apples price comparisons when gauging price trends. That’s because the features that define a benchmark home remain fixed over time and because benchmark prices consider how a home’s features contribute to the price of a home. Benchmark prices are the foundation of the MLS® HPI.

Average price

Making apples-to-apples comparisons are simply not possible when using average or median price comparisons. Average price is simply the total value of home sales divided by the number of sales. It can pitch dramatically from one month to the next based on changes in the sales mix.

Median price

The same holds true for median price. Median price is what you get when you sort sales from highest to lowest price and then pick the one in the middle. Like average price, it too can shift significantly from one month to the next based on changes in the sales mix.

The price of things changes but to accurately gauge how they’ve changed requires their features remain the same. Substitute “homes” for “things” and the same holds true. The MLS® HPI is the only way to do that. It’s simply isn’t possible to make apples-to-apples comparisons using average and median prices because they are affected by changes in the mix of home sales that go into their calculation.

Learn more about the MLS® HPI and its benefits to you and your clients.

As CREA’s former Chief Economist, Gregory Klump provided his views on the state of and outlook for Canadian housing markets to news media, policy makers, and real estate industry stakeholders. In 2017, Gregory celebrated his 25th anniversary as a member of the team at CREA. He’s an avid skier and snowboarder during the winter and a year-round Crossfit enthusiast.

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