PAGE INDEX : Consistency in Tracking Trend Prices | Measuring Prices Between Two Periods | Reliability of Benchmark Prices.

Consistency in Tracking Trend Prices

An important characteristic of the HPI is that the quantity and quality of the features in a community's benchmark property remain constant. Therefore, changes in the cost of the basket over time are not due to changes in the quantity or quality of the features observed (i.e. lot size or number of rooms), but rather, the rate at which prices changed between two periods. This price change takes into consideration the rate of inflation and other economic factors. By keeping the benchmark components constant, a more accurate and "pure" price change can be tracked in well-defined housing markets.

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Measuring Prices Between Two Periods

The HPI can be quoted as an index price such as 120.1, or a benchmark price such as $317,030. The index price makes comparisons using a base year figure, which equals 100. In the current HPI model, the base year is 2001. Any number higher than 100 indicates an increase from the base year. For example, if the reported index number was 120.1, this figure would indicate that the price of a typical, constant quality property in a given community increased by about 20 per cent from the base year (2001).

Changes in the price index can also be measured between any two periods. To illustrate this calculation we can compare index prices over a one-year period for detached homes in a fictional HPI community. The index price for a typical house in June 2004 was 132.5 (2001=100) and in June 2005 it was 134.5 (2001=100). Therefore, using a simple formula to calculate percentage change reveals an increase in the index price of approximately 1.5% between June 2004 - June 2005.

Here is the formula:

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Reliability of Benchmark Prices

Benchmark prices, as mentioned earlier, are a compilation of housing features Greater Vancouverites buy most. However since homebuyers tastes vary, property prices are inherently difficult to measure and benchmark prices cannot be known exactly. To account for this variance, the HPI pricing model includes a "price range" field that surrounds each benchmark price. The price range is a plus or minus percentage point of the benchmark price. It is used as a gauge to express the reliability of the benchmark price. The narrower the price range, the more reliable the benchmark price.

The upper and lower bands of the price range are dependent on two primary factors: the number of MLS® sales on which the benchmark price is based, and the degree of similarity among the property sales. The more sales used to calculate the benchmark price, the narrower the price range and the more reliable the benchmark price.

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