Tuesday, March 26, 2013

Comparing Canadian and US House Prices

To compare Canadian and US house prices we can use the US-based Case-Shiller house price indexes overlaid with the Canadian-based Teranet house price indexes. The two share comparable methodologies, using same-sales pairs with extraneous discards. Since the house price indexes are referenced to a point in time, and not a specific valuation, we will need to re-scale the results to some value for an apples-apples measure. I produced these results about a year ago and have updated the values to the latest data. The incongruity between US and Canadian HPIs is evident:

The Case-Shiller  uses a baseline of January 2000 = 100, the Teranet is June 2005. If, for example, Canada was in the midst of a speculative bubble in 2005 and the US were more fairly-valued in 2000, it means the scaling factor for Canadian cities will under-report gains. One method to compensate for this is to re-scale the indexes and align the troughs:
This graph finds the minimum indexes in the 1990s and rescales those values to be 100. Then the data are time-shifted to align these minima. I have CPI-deflated the results. Based on this measure, for what it's worth, while Vancouver is currently more overvalued than any US city, index gains over the past year have vaulted cities like San Francisco and San Diego to be rather close to Vancouver. As a sidenote, Jim Sutherland, a local reporter, opined to me last Wednesday that some coastal US cities are showing valuations approaching those of Canadian cities, even Vancouver. This simple analysis would tend to support this view.

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