Vancouver Teranet HPI Trendline Analysis

The Teranet House Price Index provides a reasonable indication of market movements by tracking same property sales pairs, a technique first used by Case and Shiller formulating an index for US residential housing markets. I have plotted the Teranet HPI for Vancouver below and included four appreciation scenarios as follows:

• "New Normal" - prices of the last 8 years are indicative of future gains. This is about 9% per annum.
• "Trendline" - Appreciation follows a trendline based on data from 1990 to current (5.27% pa)
• "Old Normal" - prices from about 2004 are considered extraneous and past trends from 1990 to 2003 are used to determine long-term growth trajectory. (3.0% pa based on trendline 1990-2004 inclusive)
• "Old Normal Bottom" - same as "Old Normal" but shifting the trend to be based on price troughs and not middle. This would be the "bearish" scenario.

The results can be summarised, for what they are worth, as follows, assuming one purchases a $500,000 property at today's prices (170), looking at scenarios in 2015 and 2020 where prices re-align with the respective trendlines

• "New Normal" price will appreciate to $670,000 (10.6% CAGR) in 2015 and $1,030,000 (9.5%) in 2020
• "Trendline" price will appreciate to $508,000 (0.9%) in 2015 and $655,000 (3.6%) in 2020
• "Old Normal" price will depreciate to $341,000 (-11.7%) in 2015 and $394,000 (-2.8%) in 2020
• "Old Normal Bottom" price will depreciate to $302,000 (-15.0%) in 2015 and $350,000 (-4.2%) in 2020

If one believes the long-term appreciation in Vancouver real estate looking at the trendline from the past 20 years, there should be no rush to buy in the next few years. If one believes the last decade was one that mirrored experience in the US, where prices have reverted in real terms to those of the mid-1990s, this is not what I would characterise as a good time for purchasing residential real estate in Vancouver.