House prices in further decline

On the question of where house prices are going compared with where they've come from, the measure National Bank Financial has devised, hints at continuing declines in Metro Vancouver, at least until sales volumes climb more substantially.

Metro Vancouver house prices dipped 1.7 per cent in March from February on the Teranet-National Bank Composite House Price Index, which was released Wednesday.

Between January and March, Vancouver prices fell 6.4 per cent, and the March drop was the ninth consecutive month of decline on the financial institution's measure.

The Teranet-National Bank index pegs Vancouver's market peak at June of 2008, from which it has declined almost 12 per cent.

"I'm not making a forecast," Simon Cote, managing director of property derivatives for National Bank Financial, said in an interview. "But if we look to previous business cycles, very seldom do we see the house-price index turn around in a direct V shape."

He looks to the volume of sales as an indicator that the decline in values is stopping, and the sales volumes that are captured in the Teranet index were still low compared with a year ago, some 40 per cent below last year in Vancouver's case.

"Until the year-over-year change in volume starts to pick up and be positive, even if it is low, low single-digit nationally, according to the Teranet report, home prices across the six markets it measures declined 1.27 per cent from February to March and were down 4.74 per cent from January numbers, it is going to be very difficult to see a turnaround [or stabilization] in the index," Cote said.

Overall, Cote said the March index shows that the decline in property values that the index has seen in western cities, has spread to the east, particularly Toronto.

The Teranet-National Bank index is calculated based on repeat sales of existing homes, known as paired sales, to capture direct examples of changes in value, rather than just measuring the average value of all homes that sell in a given month.

National Bank Financial uses the index as the basis to trade housing futures, builders or lenders to make bets on whether home prices will increase or decrease and hedge against volatility in housing prices.

It tracks housing prices in Vancouver, Calgary, Toronto, Ottawa, Montreal and Halifax.

Release of the Teranet-National Bank report comes on the heels of several established forecasts released over the past couple of weeks that offer a range of opinions about what is going to happen in the market.

The B.C. and Canadian real estate associations came out with revised forecasts that price declines in the Vancouver market will not be as steep as their initial forecasts for this year.

Canada Mortgage and Housing Corp.'s revised forecast, however, estimated that prices will fall more steeply than the initial forecast and dip slightly again in 2010.

Tsur Somerville, the director of urban economics and real estate at the Sauder School of Business at the University of B.C., said Teranet, while not a forecast, does offer a more accurate measure of price changes than a straight calculation of average prices sold in a month.

However, the index is also calculated as a three-month moving average, which Somerville said won't reflect market changes in the same way.

For example, Somerville said that while the Teranet index is still declining, the Real Estate Board of Greater Vancouver's housing price index shows the declines starting to flatten out.

("Vancouver housing prices in further decline" prepared by Derrick Penner/Vancouver Sun)