The drop in 2018 Canadian home prices isn’t what it seems

Although much has been made about the decline in Canadian home sales and prices, one economist suggests it wasn’t as bad as it seems.

“Remember: If the price of every house in the neighbourhood stays the same in a given year, but fewer of the expensive ones change hands in favour of the cheaper ones,

the ‘average price’ will fall,” writes Robert Kavcic, a senior economist for BMO, in a client note.

Kavcic acknowledges the fact that, yes, Canadian home prices did indeed fall in 2018.

The average price of a Canadian home this past December was $472,000, down 4.9 percent from the same month a year ago, according to the Canadian Real Estate Association (CREA).

For the whole year, home prices were down by 4.1 percent marking the biggest drop since 1995, Kavcic notes.

“But the decline is exaggerated by the arithmetic of a changing sales mix,” he continues.

What Kavcic means is, sales were especially soft in the costly Toronto and Vancouver markets, which is going to have considerable pull on the national average price.

Removing Greater Vancouver and the GTA from calculations trims close to $100,000 from the national average, CREA says.

“Main points here: It wasn’t as bad as the headline 2018 national price decline looks; but it wasn’t good for much of the country either; and this year could see housing stagnation become a wider and more persistent theme,” Kavcic concludes.