Measuring prices in resale housing markets in Canada: Evidence and implications*

The standard measure of resale prices in Canadian housing markets is the average price of units sold through the Multiple Listing Service (MLS). The widely-acknowledged limitation of MLS data is that the mix of units sold can vary over time. We use data for the City of Toronto from 1974 to 1989 to construct a quarterly price index based exclusively on the repeat sales of identical units. We use data on building permits to eliminate from the sample those dwelling units in which major renovations or improvements have occurred. We find quantitatively important differences in house price movements calculated from this benchmark index and the corresponding MLS index. Since house price movements do influence policy, we propose that the federal government estimate and publish an improved index of resale prices. We also find that house price movements, correctly measured, exhibit both persistence and a pronounced seasonal pattern. These, too, have potential implications for housing policy.