The Canadian Government Thinks Vancouver Homes Are Cheaper Than In 2008… Seriously

The Canadian Government Thinks Vancouver Homes Are Cheaper Than In 2008... Seriously

Yeah, you read that right. Last week we discussed some of the issues with the calculations of the Consumer Price Index (CPI), and how it  sandbags inflation. Shortly after, an institutional advisor contacted me to say that was the tip of the iceberg for useless data being used by the Canadian government. He suggested we look at Statistics Canada’s New Home Price Index, and the numbers they came up with for Vancouver, Canada. Turns out ole’ StatsCan thinks new construction in Vancouver is the same price it was almost 10 years ago.

The Good, The Bad, and Statistics Canada’s New House Price Index

A Home Price Index is a way for economists to remove pricing bias. It gives you the price of a “typical home,” which is a non-existent house composed of various common attributes. When done correctly, it’s the most effective way to gauge the direction of a market. The REBGV, TREB, Teranet, and the Case-Shiller Home Prices Indexes are excellent examples that are done right. Generally speaking, economists and fund managers use these numbers to figure out if prices are rising, or falling. To see what can go wrong with these indexes, let’s look at Statistics Canada’s New Home Prices Index.

New Home Price Index Before January 2017

The New Home Price Index from Statistics Canada that was used for government analysis before 2017 is useless. The last month it reported numbers was December 2016, where it gave new home prices an index score of 102.5. The index pegs this number at the same inflation adjusted price level as February 2008. Actually, according to this index, new home prices in Vancouver were more expensive in March 2008 than they are today. Any Vancouver real estate agent can tell you that this is just insanity. Despite that, it’s the official government number, and policy is set based on these numbers.

Source: Statistics Canada.

New Home Price After January 2017

Statistics Canada must have realized they dropped the ball on the old index, because they replaced it with a new index this year. Unfortunately, they only adjusted the geographic region – which  didn’t change a lot. The index was last updated in March 2017, with an index number of 100.5. According to this new and improved index, new home prices in Vancouver are the same inflation adjusted price as May 2008. The data isn’t improved, but the government will still use this flawed data to determine policy around housing in the near future.

Source: Statistics Canada.

Reality of Vancouver Real Estate Prices

If you follow Vancouver real estate you likely know those numbers aren’t even close to reality – even if you’re not a stats expert. The average sold price per square foot of new construction increased by 49% from 2008 to 2016. Even inflation adjusting those numbers, you end up with a 32% increase. Now average prices and a home price index aren’t the same thing, but a 32% change should be reflected somewhere in the index. The index showing little movement should be worrisome to anyone using those numbers.

Most Canadians have an irrational confidence in government numbers, without understanding where those numbers come from. The New Home Price Index is just one of the miscalculated indexes that ripple through the “inflation” numbers our economy is based on. Sandbagging the numbers may lead to better marketing when comparing Canada to other countries, but hurts Canadians in the long run.

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  • Reply
    Dave Calhoud 7 years ago

    Bureaucrats must really have their heads up their butts to think this was even close to right. This is the problem with Canada, we prioritize credentials over experience.

    Even a brand spanking new Realtor would understand that this is wrong – even with high school level knowledge of inflation. Most Canadians that are all too happy to fill out useless Census forms, will claim the Realtor is wrong because they didn’t publish “how the survey” was taken.

  • Reply
    Mike W. 7 years ago

    Most people don’t realize that Statistics Canada is just a massive survey group, that is heavily funded. None of the data they collect is from a reliable source, they ask people in a quiz-like survey. It’s not a lot better than Ipsos Reid polls.

    The government has *real* data, we just don’t use it for some reason. In finance, we wouldn’t dare use StatCan numbers, they’re unreliable. They think the average internet transaction was $1500 or some crap.

  • Reply
    Wajmah 7 years ago

    “Sandbagging the numbers may lead to better marketing when comparing Canada to other countries, but hurts Canadians in the long run.”

    This is exactly it. The Canadian government is more concerned with “quality of life” index scores than actually improving anything. We spend a phenomenal amount of money advertising in foreign countries, just to give the impression Canada is doing well. Gotta keep the ponzi going, by selling Canada as a great place with a ton of opportunity.

    The reason we have so many astronaut families are Canada maintains a brand of high quality, but in actuality there’s no way to earn money here. We need our kids to go to school here, to get high quality jobs in so-called “developing” countries, where more opportunity exists.

  • Reply
    Trader Jim 7 years ago

    The “irrational belief” that Canadians have in government numbers is what keeps them predictable. Great for guys like me watching this from New York, that can make a ton of money knowing they’ll make the same mistakes repeatedly. Probably not great for you considering debt levels are so high 😛

    Funny that you guys are the only ones that pointed out the CMHC CFO used old stats for Canadian debt levels the other day. This guy should know high-risk borrowers like the back of his hand.

  • Reply
    Todd J. 7 years ago

    I love this blog. You guys must get so much hate mail, lol.

  • Reply
    Simon 7 years ago

    That’s funny how bad the numbers are for Vancouver. I work for a developer in Toronto, and we use the Toronto numbers. It pegs prices at about a 38% increase over the same period that Vancouver had no increase at all.

    If that were the case that Vancouver didn’t rise, I would just be flipping pre-construction no the resale market straight time. Pre-construction never gets more expensive, but resale almost doubled during that time? Who say that and continued to publish it?

    Do you have more reliable numbers for Toronto? I’d love to see them. We would pay good money for a full report.

  • Reply
    Fredrich 7 years ago

    When are you guys expanding to New York? You have a lot of fans down here, we’d love to see what dirt you come up with over here.

    btw, found out about you guys from Business Insider. Great stuff.

  • Reply
    TFW_GO_HOME 7 years ago

    You’re doing amazing work guys. Please keep it up.

  • Reply
    Beh G. 7 years ago

    Hi Stephen,

    I’m a huge fan and regular reader of your blog and most often very impressed with the analysis you guys fo.

    But you sort of contradict yourself in this article… in your article a few days ago you drew attention to the fact that CPI is not a real accurate measure of inflation… that in fact, as most Canadians already know based on personal observations, our inflation is much higher than what the CPI suggests.

    For all intents and purposes, housing/shelter is the biggest spending component for most Canadians. If the CPI were to included price increases in real estate, or even more accurate reflect increases in rent, it would be a much higher number and more reflective of “inflation”.

    If you used “real inflation” adjusted prices (closer to 8-9% in Vancouver), not those adjusted to national CPI numbers, the chart that you would get for Vancouver would not be far off from what you ‘ve shown above.

    • Reply
      David 7 years ago

      I think the point is that it’s a circle jerk, and the stats are nowhere close to correct. The New Home Price Index is used to help establish CPI, which already only thinks Canadians are spending 30% of their income on shelter. Basically the government goes “30% of the inflation basket moved 0%.” So only 70% of the cost of real goods gets factored into the cost of living for Vancouver residents. That’s not an exact number, but you get the idea.

      We look at the New Home Price Index at my work (I work at a developer in Toronto), and it’s reading 30-40% over the same time in Toronto. I know that our Vancouver developments are going for substantially more than they were 10 years ago, more so than Toronto. I think what’s broken is how they’re collecting the data, not the formula itself. It seems to be pretty close to reality in Toronto, but Vancouver is broken.

      The consequence is the Federal government thinks there’s real issues in Toronto, and Vancouver doesn’t have any. They’re likely under the impression that residents that are complaining are just that. Probably why the BC Liberals had to disagree with the Fed when they slapped on the foreign buyer tax.

  • Reply
    Housing Newsletter: Using The Bank Of Mom And Dad… What Could Go Wrong? | Updates By James 7 years ago

    […] StatsCan gets Vancouver home prices very wrong (Better Dwelling) […]

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