Not to be confused with the recent Home Price Index being
promoted by MLS, the House Price Index is a co-sponsored initiative by Teranet
and the National Bank. Also known in short as HPI – the actual full name for
the index is The Teranet–National Bank House Price Index™.
HPI is an independent representation of the rate of change
of Canadian single-family home prices. The measurements are based on the
property sales records of public land registries, lending accuracy and
trustworthiness to the index. The monthly public indices currently cover 11
major cities across Canada.
So how does the HPI generate its numbers? It’s all
automated!
The Teranet – National Bank House Price Index™ is estimated
by tracking the observed or registered home prices over time. Properties with
at least two sales are required in the calculations. Such a “sales pair”
measures the increase or decrease of the property value in the period between
the sales in a linear fashion. The fundamental assumption of the constant level
quality of each property makes possible the index calculation but imposes
difficulties in selecting (or filtering) those properties that satisfy it.
For the Teranet – National Bank House Price Index™, all
properties that have been sold at least twice are considered in the calculation
of the index; this is known as the repeat sales methodology. Properties that
are affected by endogenous factors are not considered in the estimation. These
factors may include: a) non-arms-length sale, b) change of type of property,
for example after renovations, c) data error, and d) high turnover frequency
(biannual or higher).
In the repeat sales methodology, the averaging of price
appreciation from different pairs of sales is done using a complex estimation
process in which each pair is a separate observation.
Lenders can leverage the data from the House Price Index to
make more informed decisions that enable better overall risk management and
portfolio valuation.
If you are a lender you can use the Teranet – National Bank
House Price Index™ to:
- Gain unparalleled insight into the dynamics of a highly varied Canadian housing market.
o
Keep abreast of Canadian housing market dynamics
with timely housing data.
- Acquire more granular information on house types, neighbourhoods, and price tiers with neighbourhood sub‐indices across nearly 90% of the Canadian population.
o
Review
market activity at the FSA level
o
Review
market activity by type of dwelling.
o
Compare
neighbourhoods and gain insight into the performance of each targeted area.
- Track mortgage collateral value using the catalogue of indexes.
o Identify an increase or decrease in
the value of your collateral by metropolitan area helping you determine where
you are most exposed to risk.
- · Quickly identify trends and assess changes in home prices over time.
- · Assess and adjust your risk exposure.
- · Adjust lending policies to meet the needs of targeted geographic regions.
The Teranet-National Bank House Price Index™ is an important tool to utilize to cover
all the bases. Save time and resources and be more competitive.
For more about The Teranet-National Bank House Price Index™ please contact Teranet today by calling 1.855.787.8439.
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