Mclean's Article Stirs the Pot of Canadian Housing Market Values

A rather sensationalistic article just came out in Maclean's (a leading Canadian weekly magazine) stating that the Canadian housing market has the potential to fall off the cliff like our U.S. neighbours. Judging by the number of errors in the article being reported by Teranet and the Canadian Real Estate Association (CREA) who say they weren't even contacted for the article, I wonder about the motivation behind the story. This is their headline: "The shocking truth about the value of your home."

In 1997, while traveling through the U.S. on a three-month journey with my family, I was shocked by the daily dose of negative press about the U.S. economy, housing values, etc. It was as if they were willing themselves to a lemming-like plunge off the money ledge. And predictably, not to be outdone, the Canadian media now seem hyper-inspired to spoon feed us from the same bottle using the same spoon.

As a realtor (and former journalist), I'm not asking the media to mislead us by printing stories about sunshine, puppies and roses but I do feel they have a responsibility to not yell fire every time they're in a crowded movie theatre. Most editors will tell you that good news doesn't sell but a little good news can go a long way when people need a lift. And people need a lift right now.

Below is a letter sent to the Ontario Real Estate Association (OREA) members from Teranet pointing out the "erroneous information and misleading statements" in the article. Also, here's the link to the Maclean's article: (http://blog.macleans.ca/2009/02/23/the-shocking-truth-about-the-value-of-your-home/)

"Subject: Maclean's magazine MLS® attack

By Chris Butler, Account Manager, Real Estate (Teranet Inc.)

Teranet would like to take this opportunity to correct some erroneous information and misleading statements that have been made in a Maclean's article and on a BNN news segment, regarding Teranet's role in the Teranet - National Bank House Price Index (HPI). Off the top there are a couple of key points to make clear to you as you hear or read information from these news sources.

The first point is to clarify our exact role with the HPI - Teranet operates the Index as a co-venture with National Bank. Teranet, as part of other service offerings for the financial services industries, acquires property sales data from across Canada. Six metropolitan areas: Greater Toronto, Calgary, Greater Vancouver, Ottawa, Greater Montreal and Greater Halifax are used to compute the HPI. Of note is that Teranet uses historical property sales data collected from various provincial land registry systems and service providers.

As operators of the HPI, Teranet does not in any way make predictions as to the future trending of housing markets. The predictions cited by these news sources are those of various economists and investors.

A very advanced and proven methodology is used to compute the HPI that can be reviewed at the following link http://housepriceindex.ca and I encourage you to visit the site to become aware of the methodology and the sample reports.

Several sections of the Maclean's article provide inaccurate information:

• "When the Teranet market started up in December, it immediately predicted a shocking drop of 20%, followed by an excruciatingly slow recovery that might not see prices return to last year's high for seven years, or longer." - To clarify, there is no "Teranet market". We do not operate a housing futures market. Also, Teranet and the HPI, make no such prediction whatsoever. We use the raw data to compute the HPI values and the data has a 2 month lag (the index report that will come out tomorrow, February 25^th 2009, references data current to December 2008). We do not make any predictions on future house prices nor do we make any predictions on when house prices will return to last year's numbers.
• The graph titled "The future of house prices in Canada" shown in the Maclean's article - One needs to understand that the "Market Forecast" of that graph is again the prediction of various economists and investors, not what Teranet has actually measured. The HPI is not a predictive system; it only reports on what has actually happened in the six markets it covers.

The reality is that Teranet has every interest in seeing the real estate markets show positive growth, as our revenue on transactional services is directly linked to the housing markets, so we would not participate in a business that would work at odds with our strategic objectives.

You may also see a BNN news clip that was aired yesterday around 4:30pm that shows a table indicating that the "Teranet futures market" is predicting an 18% drop and no recovery for 5 years. Again, the predictions are not those of Teranet, nor are they computed through the HPI - the opinions are those of various economists and investors. The HPI generates the index values based on historical information of registered home sales.

Two further notes: Maclean's did not contact Teranet to validate the article. Also, the HPI has been referenced in the federal 2009 budget alongside Statistics Canada which is a good indicator that the methodologies used to facilitate the HPI are sound.

I hope this provides some insight into the Teranet - National Bank House Price Index and assists in correcting some inaccurate information that you and your board members, OREA and CREA may have read. Should you have any further questions, please review the information at http://housepriceindex.ca ."