What is the MLS® HPI, and how do we define benchmark attributes?
The MLS® HPI is a measure of home prices that provides a clearer, more accurate picture of market conditions and trends when compared to other tools like average or median prices.
Modeled on the Consumer Price Index, the MLS® HPI measures the “middle-of-the-range” or “typical” home, excluding extreme high-ends and low-ends.
A “typical” home is defined by measurable attributes (e.g. above ground living area in square feet, number of bedrooms, number of bathrooms) and more abstract features (e.g. proximity to shopping, schools, transportation, hospitals etc.), which combine to create a benchmark price.
Improving the methodology
The MLS® HPI was first introduced in 2012. In this original model, benchmark prices were linked to the previous year, which was linked to the year before that, going back continuously to the beginning of the MLS® HPI’s records.
While each year the MLS® HPI would update housing attributes to reflect recent home sales, the data associated with these attributes would still be linked to historical data. Benchmark prices also factored in historical benchmark attributes. This meant that as time went on, the MLS® HPI began to reflect what historically sold in a community more than what was currently selling.
Defining a new benchmark
Under the new methodology, benchmark attribute data is derived from data collected from the previous five-year rolling period, and benchmark prices are now based on current attributes instead of linking benchmark prices to historical benchmark attributes.
This means a “typical” home will now be based on the attributes of last five years of sales data and will be compared to that same “typical” home in the past.
Using more recent data to define a “typical” home
With the new methodology, the MLS® HPI data more accurately reflects up-to-date trends in a community.
If a community underwent drastic change over a short period of time, the previous MLS® HPI benchmark may be based on a “typical” home from before this transformation, since the accumulated sales data from 2012 to the current date would outweigh the relatively smaller number of sales in the past few years.
For example, if a community saw almost no homes sell with a finished basement suite from 2005-2019, even if every home sold from 2020 onward had a finished basement suite, the previous model would still define a typical home as one without a finished basement.
Eventually this would change, but it would take time.
The new methodology eliminates this lag. Because it looks at the past five years, in this scenario a typical home would now include the finished basement suite.
In line with best statistical practices, the MLS® HPI is reviewed each year. This is when a “typical” home is recalculated based on the latest MLS® sales data. Coverage is also extended to communities where sales volumes increased enough to support benchmark price tracking and discontinued for communities where sales became too sparse to support benchmark price calculations.
The methodology changes and the MLS® HPI annual review were combined this year to avoid multiple annual revisions.
All benchmark price data going back to 2005 will be recalculated based on the most up-to-date set of attributes to paint a clearer picture of individual Canadian markets.
The result is an improved “apples-to-apples” comparison that can be applied evenly to all data.