By Brian Madigan LL.B.
For several years I have been producing a real estate index. It started effective 1 January 2004 and tracked prices monthly in accordance with an index. Everything was set at baseline 100 on the first of January 2004.
The reason was largely to provide at least four consecutive years of numbers for the purposes of comparison.
The four year moving average is the standard for comparative purposes in the mutual fund industry, so that's why I selected the starting date.
However, that was 65 months ago. It's now time to revamp the index and make it a little shorter in terms of the time period. So, the new staring date is 1 January 2005. That will mean that as of the end of May 2009, we are looking at the last 53 months. There's no magic in the staring date. It could be anytime.
In fact, we will be keeping track of the five year and ten year numbers as well. The only real difference is that the published "ORES REAL ESTATE INDEX" will be one year shorter than it is now, and hopefully one year more relevant in terms of recent market activity and performance.
The interesting fact is that the removal of the 2004 calendar year from the statistics will point us toward some different conclusions. Really, we are just looking at numbers. Numbers don't lie; people do!
So, be careful about what particular conclusions you may wish to draw from the numbers. You might be right on the new index, but wrong if we looked at the old index.
Let's have a look at the numbers:
Absolutely everything we look at is worth 100 points on the Index as of 1 January 2005.
As of 31 May 2009, (and the highs are placed in brackets)
122.43......(123.38) GTA single family homes (average prices)
116.96.....(125.94) All condos in GTA (average prices)
108.97.....(149.83) Downtown Toronto Central Condos
123.88.....(125.80) East condos
115.93......(134.70) North condos
125.12......(128.23) West condos
Other market comparisons
227.94.....(231.09) gold (price per ounce)
150.84.....(320.88) oil (price per barrel)
122.43.....(123.38) ORES Index single family homes
112.67......(158.90) TSX index
86.03......(130.99) NASDAQ index
81.03......(132.47) Dow Jones index
Observations (on the Index)
As we move to the four year index, there are several notable comments:
· The North condos performed exceedingly well, on a four year basis, compared with the five year numbers
· You will recall that I continuously cautioned about the "false start" for the North Condo numbers on the old Index
· In effect, it was very easy to draw a false conclusion based on the 5 year Index
· Central Downtown condos were the consistent big performers on the 5 year numbers, but performance was dropping rapidly
· Central Downtown condos are the worst performer on the 4 year numbers
· In effect, to achieve the great performance in the downtown condo market, you had to buy before 1 January 2004, because by 1 January 2005, it was too late
· Obviously, there will also be something wrong with the new 4 year index, we just don't know what that is, at the moment
Comparative Observations Using the New Index
· Gold was the best performer
· Oil was the most volatile, (yes it dropped in half)
· Real estate was the most stable
· West condos performed best when it comes to real estate
· Downtown condos performed poorly and were the most volatile
· This is largely due to increased supply of downtown condos
· Our own stock market posted reasonable gains
· All three US stock market indicators show negative numbers
For steady, predictable, measured gains pick real estate. It's a solid performer with lower risk (less volatility) and generally moving in a positive direction.
But, what a difference a year makes!
Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty