HOME PRICE INDEX (HPI)

ABOUT THE MLS® HOME PRICE INDEX (HPI)

The MLS® HPI measures the rate at which housing prices change over time taking into account the type of homes sold. The index tracks the willingness to pay for various housing features whose values can differ from one sale to the next, and from one neighbourhood to another, providing a better measure of general price growth for each category of home being tracked.

How does it work? Each home that is sold has a set of features such as living area, number of bedrooms and bathrooms, lot size, location. The model determines the current value for these attributes, and is used to determine how the value of the standard home changes over time; indicating the price changes are not subject to being skewed by the composition of the properties sold, the way average and median price would.

Indices are available for one-storey single-family homes, two-storey single-family homes, single-family homes, townhouses, apartments and total composite. They are available by communities, and the broader market. This makes it possible to compare price growth from one area to the next, and the overall market.

Some of the advantages of the MLS® HPI include:

• Understanding current market conditions and true price trends.

• Estimating current market value or selling price of a typical home.

• Tracking typical asset price changes.

• Comparing characteristics and price trends in different markets.

The only potential inconvenience of the HPI model is its complexity, making it relatively difficult to explain for most consumers.

REALTORS can use the MLS® HPI to not only determine price trends, but also gain insight into the typical home in a specific market segment, adding value to the existing tools used to value homes for both buyers and sellers.

BENCHMARK HOMES AND PRICES

A benchmark home is one that is comprised of a set of specific attributes (three-bedroom, 1,000 sq ft, finished basement, for example) that is typical for the area where it is located. These attributes remain constant over time, and differ between communities.

A benchmark home price is estimated using the MLS® HPI model, and are based solely on the specific attributes of a benchmark home. Because of that, it is more restrictive than the index, which is based on a broader set of properties in each housing category.

Benchmark prices are useful for comparing price levels and growth for specific benchmark homes.

Read more http://www.creb.com/public/media-resources/MLS_HomePriceIndex_backgrounder.pdf

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