Globe and Mail analysis reveals “flawed uses of data” in pessimistic reports
TORONTO – During one of the country’s coldest winters in recent memory, Toronto’s real estate market has managed to stay as hot as ever with GTA home sales even climbing by 2.1 per cent – and the average home price increasing by an incredible 8.6 per cent – year over year in the month of February.
If you are a regular reader of our Market Update series, we probably won’t need to reiterate that 2013 was a positive year for strengthening property values here in our local market of Greater Toronto. It’s not just us, either – according to the Globe and Mail, a similar phenomenon has also been occurring in western Canadian hubs such as Vancouver and Calgary.
As house prices have continued to heat up, Canadian economists have been attempting to make sense of major Canadian markets’ rising home values by looking at key indicators such as the debt-to-income ratio, and the rate of condominium construction.
Based on one such analysis – which chiefly examined Canadian markets’ price-to-rent and price-to-income ratios – Deutsche Bank economists based in New York arrived at the conclusion that the country’s real estate was overvalued by 60 per cent.
According to a recent journalistic analysis published in The Globe and Mail, those numbers might be less “frothy” than they appear at first glance. The problem was Deutsche Bank’s data source: the Organization for Economic Co-operation and Development, who in turn got their data from Statistics Canada rent numbers.
Statistics Canada’s Canadian rent data is compiled solely for use in calculating the consumer price index. This can make for a problematic data source because – as Perkins explains – “it is not meant to be a measure of change in prevailing market rents.”
The Globe’s reporters got in touch with a Statistics Canada information officer, who verified that “inferences concerning the change in the average prevailing market rents is not something that the rent index is designed to provide.”
The Globe spoke with oft-quoted CIBC economist Benjamin Tal, who explained that he used apartment rent data from the Canada Mortgage and Housing Corporation (CMHC) to calculate a “reasonable national measure of rents.”
What does this all mean for homeowners?
If you keep up with real estate news, you have probably read a few opinion pieces or studies insisting that the Canadian market is overvalued, or even that growing prices foreshadow an eventual downturn. The problem with relying on these reports, however, is outlined fairly well above: understanding the true strength of the market is a tricky science that might not always be 100 per cent accurate, even when working with data from a reputable organization like Statistics Canada.
If you are thinking of selling your home, but not sure whether the time is right, the best way to get a better idea of your own picture is to speak with a licensed real estate professional who knows your neighbourhood and can appraise your home accurately. To reach a Living Realty agent for more information, click this link to get to our Contact Us page.