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Interpreting Sunshine Coast Real Estate Sales - The 3 Amigos
08-27-2013, 10:40 AM, (This post was last modified: 08-29-2013, 04:01 PM by Skook.)
#1
Interpreting Sunshine Coast Real Estate Sales - The 3 Amigos
Three friends are meeting in a bar to watch a hockey game. These guys have known each other all their lives and grew up only a few doors apart on Great Expectations Ave a block over from the intersection of Bleak House and Hard Times (the city planner was an old geezer with a passion for Dickens and a wry sense of humour). Professionally, they’ve headed in separate directions; however, they’re determined to maintain their friendships and meet once a month despite life’s ups and downs. Let’s meet them.

ASP is a true extrovert. He’s the life of the party. He’s loud, he’s funny and because he accepts no boundaries the other two expect to carry him out of the bar as they usually do every month. He works in the marketing department of a local professional sports team. He sets new records every year in corporate ticket sales because no one else can match his ability to make a losing season sound like a winner. Everyone loves to be around ASP.

MSP is also an extrovert and appreciates a good time, too. However, being slightly more pragmatic than ASP, he has learned that life tends to run more smoothly if you set personal lines in the sand that you won’t cross. For example, because he hates puking and wants to walk out of the bar on his own two legs, he knows when to cut off the alcohol and start chewing ice cubes. People tend to respect MSP even when they don’t know his profession. He is cop.

BMP is the night to the other two’s day. He is an introvert. Whereas the other two appreciate the physical aspects of the game, he loves its history; but, above all, the math. He needs to keep is head clear. He is the designated driver. He leads the statistics department of a large auto insurance company. He learned early on to slightly fudge his profession when asked what he does - most people will walk away in disgust if they hear the truth. People believe the stats are not to be trusted; they believe the stats favour the industry. He believes that is purely an emotional response which is why he places his faith in numbers. His nickname is Spock.

******************************

I was going through the REBGV July Stats Package a few weeks back and I stopped at a page that is included in every monthly report. It is a page that I have tended to ignore because I’ve only heard negative comments about its data - it is the MLS Home Price Index page. It gives the monthly HPI figure for 22 designated areas under four different Property Type categories Residential/Composite, Single Family Detached, Townhouse, and Apartment) and shows how the HPI changed over 6 different time spans relative to the reporting month (1 month, 3 month, 6 month, 1 year, 3 year and 5 year).

Results for Sunshine Coast sales appear in only two property type categories (Residential/Composite and Single Family Detached) because sales in the other two categories (Townhouse and Apartment) fall below the 20 sales per month minimum required for separate reporting although they are included in the Residential/Composite figure. I’ve isolated the Sunshine Coast July results in the image below and as you can see the HPI is showing negative results over all six time periods for those two Property Type categories.

[Image: attachment.php?aid=358]

What really caught my attention in the HPI data table were the Benchmark Price figures because of the trend I’ve noticed in sale price figures for single detached home on the Sunshine Coast over the last few months. I decided to take a closer look at SC Benchmark prices over time and spent a few days gathering data and preparing tables and charts. After viewing the results, I decided it would help to compare them to Average Sales Price and Median Selling Prices to see how they fit into the grand scheme of things. This post is my attempt to understand these three different ways RE sales data is reported in this one real estate market - the Sunshine Coast.

*******************************

Average Sales Price (ASP)

It is my impression that of the three means for reporting residential sale prices the Average Sale Price is preferred not only by the general public, but by realty offices and agents. I have created a table and chart showing the ASP for SC single detached home sales starting at October, 2010 (earliest figures I have) and ending with July, 2013.

Scroll to just bring up the table into view for now and let’s look at the data. We see that in late 2010 average prices were above the half million dollar mark; in 2011 and 2012, prices below half a million are appearing but we’re still feeling optimistic and will ignore that crazy November 2012 figure; however, in 2013 only one month out of the past seven reports the average sale price above a half million and there is another ugly figure for January 2012 but we can rationalize that, too, because December 2012 was so positive. Now, because I have set up a graph showing the ASP over time, we can see a downward trend developing; but, it is highly unlikely the public will pick up on this given the way the ASP is reported on a month-to-month basis.

[Image: attachment.php?aid=359]

The red line on the graph is the median mark for all the ASP data and that median is $480,613. On the whole according to this graph, it appears the ASP for single detached homes on the SC falls somewhere in the $425,000 to $525,000 range. Now, the thin, black trendline indicates the ASP is eroding and that could be picking up steam; but, again the public won’t know this unless they're plotting the data themselves.

So, based on this chart, if you were putting your single detached home on the market which you bought for around the half million dollar mark and therefore priced it accordingly you might feel somewhat confident it would generate interest. Now, has anyone come to view it? Have you received any offers? I would guess the answer is no on both counts and to understand why I’ll show the graph again and this time will compare it with another SC single detached homes sales graph (Note: SFD & SDH have been used interchangeably).

[Image: attachment.php?aid=362]

Million dollar plus detached home sales are included in the Sunshine Coast ‘Average Sale Price’ data and we can see their impact for the years 2012 and 2013. You can see how these few sales per month distort the ASP figures and if you were to remove them the average prices would drop below that current median mark. The only exception to this would be the month of December, 2012 because its few sales were in the $400, 000 to $800,000 range.

I would point out that the ASP for July which you see dipping below the June figure includes four million dollar plus single detached sales. Now, what would happen to the average sale price for July if these sales were removed?

In a market like Vancouver, where single detached homes priced above a million dollars is the norm the graph results wouldn’t be an issue; but, on the SC where the majority of single detached homes are valued at a half million dollars and below and where million dollar plus valued homes are “atypical” (and their sales are few and far between) then including the latter in the average sales price calculations each month should stop and/or they should be reported separately. This won’t happen, of course. Who wants to start chewing ice cubes when everyone is feeling so good?

Median Selling Price (MSP)

I am now going to look at a second method of reporting residential sales via the “Median Selling Price” and this information is included in every REBGV Monthly Stats Package. Calculating this figure is quite simple. If you were doing it by hand, you take all the sales data for the month say for single detached homes and put them in either ascending or descending order and pick the price that falls in the middle. That’s it - real simple especially if you’re working with an ‘odd’ total series of numbers - for example a total of 23 figures. With an ‘even’ total, there would be a calculation involved.

The July sales in Robert Creek offer a perfect example of how this works. In July, there were eight detached home sales and I have arranged them in ascending order in the table directly below. If there were only seven sales, the median would fall exactly at $499,000. However, since there were eight sales I had Excel do the calculation for me and the result is $539,450.

The Sunshine Coast 2011 - 2013 SFD Median Selling Price data table follows the Roberts Creek table. I have calculated the ‘median’ of these median prices and an average for the whole table and did the same just for 2013. The graph below plots the table data and the red line is that overall ‘median’ price ($395,000).

[Image: attachment.php?aid=360]

As illustrated by the Roberts Creek table the median selling price removes the few really low and high selling prices each month thus offering a more ‘balanced’ view of what buyers seem willing to pay for single detached homes. When we look at the graph, we now see that between February, 2011 and July, 2013, the median selling prices moved between a low of $375,000 and a high of $425,000 and this range is roughly $100,000 less than what the ‘Average Selling Price’ data indicates.

Now, let’s look at actual SC sales data for July in the image below. The table on the left shows the majority of single detached home sales occurred in the $300,000 to $399.000 price range followed by the $200,000 to $299,000 range and this pattern is more dramatic in the YTD totals. This shows that the Median Selling Price data, as well, is failing to adequately illustrate what is occurring in the SC real estate market. So, what are your thoughts on Sunshine Coast Average Sales Price reporting now? Is it really starting to stink?

The table in the middle shows the prices paid for single detached homes in Gibsons, Roberts Creek and Sechelt during July (million dollar plus sales removed). The sales in Halfmoon Bay and Pender Harbour have been so poor that I went back as far as March to get a good sampling (again, million dollar plus sales removed). Personally, I am beginning to think that Pender is the bellwether for the whole Sunshine Coast. The SC real estate boom began here; the insane pricing began here; the crash began here; and now the price drop is beginning here.

[Image: attachment.php?aid=361]

So, let’s take another look at those July Benchmark prices and compare them with that sales price range table on the left and Pender Harbour’s Average and Median sales prices in the table on the right. Isn’t that interesting? Now, you can see why those Benchmark Price figures grabbed my attention. Next, we’ll take a closer look at that Home Price Index data.

to be cont’d...


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08-29-2013, 03:33 PM, (This post was last modified: 08-30-2013, 10:40 AM by Skook.)
#2
RE: Interpreting Sunshine Coast Real Estate Sales - The 3 Amigos
(I don’t know what is more challenging - grappling with the meaning of life or trying to prepare this next post. I have gone through a number of revisions to both text and charts in my attempt to understand the concepts of Home Price Index and Benchmark Price. I am not sure I’ve got a handle on either but it’s time to give it my best shot.)

Benchmark Price (BMP)

As a means of explaining the MLS HPI and Benchmark Price, I had planned to quote from the MLS HPI 2012 Realtors Guide. However, for brevity’s sake, here is the link to that .pdf document (courtesy Yatter Matters). Instead, I will quote from a January 23, 2012 posting by Calgary Realtor Mike Fotiou who I think presents a satisfactory interpretation of the Guide’s definitions and some concrete examples:

Quote:We’re happy to say that the MLS® Housing Price Index (HPI) is coming to Calgary in February [2012], as part of a nationwide roll out involving boards in Canada’s largest cities. This new monthly price measure will enable us to better determine real price changes.

For example, many agents have experienced a scenario where the monthly average price increased by 5%, and our clients say, “Prices increased, shouldn’t my house be worth more?” The 5% increase is often misinterpreted, and could be caused by a number of factors including a rise in luxury home sales. As average prices can be skewed by the composition of sales, it does not reflect price trends based on the type and features that a home provides. [Skook Note: this is the issue I raise and illustrate in my first post above]

The index will help as price trends will reflect changes caused by individual’s willingness to pay for home attributes.

What does this mean for those working with REALTORS®?

By using MLS® HPI, we will be able to offer more comprehensive and purer data than ever before – data you can use for property comparisons, understanding future price trends and estimating current market values. So how does it work?

The MLS® HPI is calculated using a sophisticated statistical model that estimates home prices based on their quantitative and qualitative features, including:
  • Number of rooms above the basement level
  • Number of bathrooms and half-bathrooms
  • Square footage for main living and basement areas
  • Whether it has a fireplace and/or finished basement
  • Lot size
  • The age of the property
  • Parking
  • How the home is heated
  • Foundation, flooring, siding and roofing types
  • Whether the property has a waterfront or panoramic view
  • Whether the property has been sold previously
  • Proximity to shopping, schools, hospitals, police stations, churches, sports centres, golf courses, parks, and transportation (including train stations, airports etc.)
Upon valuating these features or attributes the index and the benchmark price are formulated.

MLS® HPI Benchmark

A ‘benchmark home’ is one that shows a set of attributes typical to the area/sub-market where it is located. Since ‘typical’ homes are different from one area to the next, their descriptions differ between areas. The typical home for each community will remain constant over time, indicating that attributes will not change.

For example, the following table outlines some of the attributes that comprise a typical home for each of the following [Calgary] communities: [Hawkwood, Edgemont, and Mount Royal]. The MLS® HPI benchmark price is calculated by taking the values determined by the model and applying it to these attributes for the ‘typical’ homes in each area. The value of these attributes is generated based on geographical groupings where the sales that have occurred are similar to each other, i.e. “homogeneous”.

[Image: attachment.php?aid=368]

As noted in the table above, the price of a two-storey home and its attributes vary from each community as do the trends in pricing. This type of monthly summary report will include each community by property type and will be available after the HPI launch in February.

Let’s take another look at the Sunshine Coast July 2013 data keeping in mind the 2012 Realtors Guide and Fotiou explanations.

[Image: attachment.php?aid=364]

The table shows data for Residential/Composite (SFD, Condo/Townhouse and Apartment Sales) and for Single Family Detached alone. We are given a ‘Benchmark Price’ for both and a ‘Price Index’ figure. As well, we are shown how the Price Index has changed vis-à-vis the preceding month (June, 2013), over three months (May, June, July, 2013), over six months (Feb-July, 2013), over one year (July, 2012 & July, 2013), over three years (July 2011, July 2012, July 2013) and over five years (July 2009-July 2013). Note that it is only one month (July) that is being compared in those 1, 3, and 5 year figures. As we can see, the SC is showing negative results across the table.

Concentrating on the Single Family Detached data, let’s see how the Price Index figure (118.7) was calculated. First, we have to go back to January, 2005 and find the Sunshine Coast SFD Benchmark Price. I turned to this Vancouver website for the REBGV historical monthly stats packages dating back to 2001.

Now, when you open up the January, 2005 package you will discover that there is no Benchmark price data - for any area of the REBGV! January is the only month in 2005 that is missing that information. Right, so I pulled the Benchmark SFD price from December, 2004 ($283,630) and February, 2005 ($287,334) added them together and divided by two, so January, 2005 = $285,482.

The next step is to calculate the ‘percentage change’ between the July, 2013 and January, 2005 Benchmark Prices and there is a tidy little formula for that (thank you, Microsoft!):

% Change = (New price/Original price)-1 = ($338,800/$285,482)-1 = 0.1867 x 100 = 18.7%

Then, drop the percentage sign and add 100 and you have the HPI = 118.7 and this would be interpreted in the following way: the Sunshine Coast single family detached home Price Index in July, 2013 was up 18.7 points compared to January, 2005 (base year =100)

To visualize the HPI over time, I have pulled the data going back to January, 2012 and created both a table and chart. I did not go back any further because prior to that date the REBGV used a different methodology for calculating the HPI and this methodology changed with this February 2012 “roll out” that saw other RE Boards in Canada adopt the MLS Home Price index. As well, the base year changed from January, 2001 to January, 2005 (The January, 2001 base year was used from 2004 - 2012 and prior to that the base year was January, 1991). The REBGV does offer a guide explaining the HPI ‘methodology’ and you can access that .pdf document here - have fun!

The HPI chart with its trendline now helps to explain why the July 2013 Home Price Index table above presents those negative percentage changes over those different time periods in the last year.

[Image: attachment.php?aid=365]

Okay, so we can see that although the HPI is still well above the base year, it has been falling since April, 2012 which means the price for a benchmark house on the SC is also falling. So, I have pulled the SC Benchmark Price going back to January, 2010 and created a table and chart. I went back to 2010 because I realized that it was in July, 2010 that the SC Benchmark Price reached its peak - the highest level it has ever obtained. The graph line is in two colours to emphasize before and after this peak.

Now, there is a question raised here - when the HPI methodology changed did that affect the benchmark price, too. I do not know. My calculation for the January, 2005 Benchmark Price was correct - it gave me the right HPI for July, 2013 so I have gone ahead and concluded that the historical benchmark prices work. The data in 2011 appears to fit in well with 2012 figures.

[Image: attachment.php?aid=371]

I added a trendline for the period of July, 2010 (the peak) to July, 2013. For fun, I extended the graph to see where the trendline crossed the base line if it maintains its present course and in the close-up image on the right you can see the date is April, 2015. This will be interesting to follow.

However, the most important message illustrated by the graph is that the benchmark price has dropped 21.6% (-21.6%) in the span of three years - since the July, 2010 peak. It is a message that I am sure sellers on the Sunshine Coast are completely unaware of given the number of listing price drops month after month. Through incremental drops, they are attempting to chase down a selling point that has dipped far, far lower than anyone realizes - except the buyers. This past July's benchmark price was last seen in November, 2005!

Finally, the bunching up of benchmark prices along the trendline after April, 2012 caught my eye which is why I took a close-up image that you see to the right of the chart. The month of June stood out at me and I asked myself did something happen here? A thought came to mind and I went on a search and here is what I found on the CBC news website - the date was June 21, 2012

[Image: attachment.php?aid=367]


to be cont'd...


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08-30-2013, 10:30 AM, (This post was last modified: 08-30-2013, 01:35 PM by Skook.)
#3
RE: Interpreting Sunshine Coast Real Estate Sales - The 3 Amigos
Carrying on from where I left off in the previous post…

I mentioned above that the July, 2013 benchmark price dropped to a level last seen in November, 2005; and, here is how I know this. After seeing how the June 21, 2012 changes to CMHC rules may have contributed to the drop SC benchmark prices over the last year, I decided to plot all historical SC benchmark prices as far back as possible which turned out to be 2003 - the first point where I had access to a full year of REBGV monthly stats. I then plotted all significant changes to CMHC rules over this period of time as well as adding other major economic events that may have impacted prices and sales. Here is the resulting chart…

[Image: attachment.php?aid=372]

The green line on the graphs shows last month’s benchmark price is matched by roughly three others in 2005 - the last being in November. The trendline spans the time period July, 2010 (highest benchmark price recorded for the Sunshine Coast) to July, 2013 - and records a drop from peak of 21.6% (-21.6%).

There is no doubt that CMHC rules changes have had a significant impact on the Sunshine Coast real estate boom and its collapse; however, those rules changes are far from the only factors. I hope to within the next month or so to finally post a thread I have been working on since early February that will take an in depth look at the years 1995-2007. It is a post that I hope will pull together much of the information I have posted here in the forum to date. This chart above is a significant addition to my research and was well worth the time spent preparing it.

Conclusions

I want to take a second look at the chart showing the SFD Benchmark Price from January, 2010 - July, 2013 along with one of the close-up views.

[Image: attachment.php?aid=370]

In addition to thinking about how those 2012 CMHC rule changes may have influenced the benchmark price over the last year, I recalled a post by Garth Turner on his blog (http://www.greaterfool.ca) that also had something to say about the movement of the market. That May 29th post was titled, “The Day it Died” and introduced us to Greater Toronto Area Realtor, Ross Kay. Turner quoted from an email he had received from Kay…

Quote:On May 19th, 2013 we recorded the lowest value of Canadian consumer engagement in real estate since 2010. What is scary here is that on April 8th 2012, we reached an all-time high engagement value. The May 19th numbers for 2013 represent about a 72% decline over that peak number. This massive decline raises grave concerns not being reported in newspapers across the country.

So we project 60 to 90 days from May 19th that MLS sales will be reported that will reveal the market died on May 19th. Our numbers have not been wrong since 2008. So as it turns out the peak of the real estate market in Canada was April 8th 2012, as posted here on Greater Fool. Peak pricing was established and as recorded MLS sales prices now show, anyone who bought in competition around that date paid too much.

Here is what Ross Kay wrote on his own website on May 29, 2013…

Quote:For the first time, since 2008, RossKay.com is going live publicly with its industry leading Real Estate Sales Trends Index because of the drastic downward trends it has recorded since April 8th, 2013. Over the course of the last 9 weeks, our index has revealed a downward spiraling real estate marketplace, with results that will not reveal themselves in MLS sales data for another 60 to 90 days, when they will finally be reported by Organized Real Estate Associations. (For Reference on March 6th, 2013, we projected a 7.7% decrease in sales volumes to be reported on national MLS sales numbers for May 1st. Since our index only projects trends the official drop of 6.2% recorded by MLS sales nationally, was indicative of the trend we stated. Our Index was the only index value in Canada to statistically project this trend.)

The radical drop in index value calculated for May 19 and again on May 26th shows a 37.22% drop and 39.11% drop over respective weekly values calculated in 2012. This drop has historical significance, as this represents the largest plus or minus percentage change, year over year, ever recorded by the index. To date 2013 respective weekly values have been lower than not only 2012 but also 2011 and have been increasing in decline week over week.

After reaching an all time Peak Index Value of 806 on April 1st 2012, the index was off 22.33% for the same Sunday in 2013 and the decline in index value has been steadily recorded.

What should the Consumer do?
First the trends our index reveals is just that a trend. We do not expect a decline of 37% to 40%, 60 to 90 days from today's date but we do expect when sales are finally reported massive drops in sales volume will be recorded.

For Sellers,
As we have been advising our own clients since April of 2012, Sell and Sell Now.

For Buyers,
As we have been advising our own clients since April 2011, wait.

My benchmark graph above appears to verify what Kay is saying about the years 2012-2013. Now, we all know that sales across Canada rose in July and many commentators have attributed those sales to buyers with low rate pre-approved mortgages jumping in before those pre-approvals expired at the end of July. So, August should be the litmus test for Kay’s predictions and, so far, August sales on the Sunshine Coast are bleak - only 20 single detached home sales in the combined areas of Gibsons, Roberts Creeks and Sechelt during the first three weeks of August (see pg. 2 of SC Listings & Sales 2011-2013). There are at least 710 SDH active listings on the SC. I can hardly wait to see the stats at end of the month.

As to the purpose of this thread which was to look at the three ways real estate sales are reported - Average Selling Price, Median Selling Price and Benchmark Selling Price (HPI), my conclusion is that the Benchmark Price and Home Price Index are doing what the other two have failed to do - show what is actually happening in the Sunshine Coast real estate market. In other words, the Home Price Index is living up to its Real Estate Boards’ billing as “the best and purest way of determining price trends in the housing market.”

Now, I will be the first to admit that I am no expert - I do not or ever have worked as a real estate agent or as a statistician and, in fact, stink at math. I have reached my conclusions based solely on the sales results I have seen on the SC and from the data and charts I have created for this thread and all are as accurate as I can possibly make them. Therefore, if others reach different conclusions when viewing this data, I would welcome your insight and comments.

Finally, there is one sentence that stood out for me in Realtor Mike Fotiou’s explanation of the Home Price Index that I quoted in the previous post and I believe it bears repeating:

“The index will help as price trends will reflect changes caused by individual’s willingness to pay for home attributes.”

I have underlined what I believe is the main message in that sentence. I think when you look at the Sunshine Coast real estate market as a whole we are now witnessing a major shift in buyer behaviour - what they want, what they are willing to pay for it and how they will pay for it. Perhaps at heart lies a major change in buyer profile. If these conclusions are true, then the long term impact to the SC will be profound; and, it is an impact that has already begun.


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