Since interest rates started climbing back in March there has been a lot said about declining home prices in Canada. Broadly speaking, market watchers have been forecasting a 20% to 25% drop – from the February peak – in the average price by the end of this year.

Those are dramatic numbers, but they are deceiving. When it comes to housing, simple averaging is good for making broad comparisons over an extended period of time. But simply dividing the total value of home sales by the number of homes sold lacks the nuance needed properly measure the state of the market.

The average price is influenced by the number of sales, but also by the composition of those sales. That is: the type, location and price of the homes sold.

In a recent note, CMHC Deputy Chief Economist, Patrick Perrier, points out that the seasonally adjusted average MLS price for the entire country fell by 15.6% between February and August of this year. He also points out that lower-priced properties made up a growing proportion of total sales during that period.

At the height of the pandemic detached, single family homes were a leading driver of sales. But, since interest rates started to climb, lower-priced condominiums have become more popular. Perrier says, that change in the composition of the market could account for more than half of the 15.6% price drop mentioned above. That would mean that the real weakening of prices is actually closer to 7%.

The MLS Home Price Index, used by the Canadian Real Estate Association, accounts for market composition. It put the price decline at 7.4%. The Teranet House Price Index also tracks market composition. It showed a 2.4% decline between July and August.

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