Comments on: 20 Year Returns for Canadian Residential Real Estate

By: dave

dave — Thu, 05 May 2011 16:05:14 +0000

7 words…. “You cannot live in your Stock portfolio” :)

By: Patrick

Patrick — Wed, 24 Sep 2008 20:44:36 +0000

@Jordan: “Being from Vancouver my first impression was WOW, that’s pretty compelling evidence to buy instead of rent.”

My first reaction was that real estate has underperformed the stock market even in the best case. My second reaction was that the standard deviation is pretty scary when you are as highly leveraged as most home “owners” are with their huge mortgages.

Here is my opinion of buying a home.

By: Preet

Preet — Wed, 24 Sep 2008 19:11:06 +0000

@Traciatim – unfortunately no. Info was passed in printed form. I tried to access CREA’s website, but I guess you have to be a member to get access (I am not a member).

By: Jordan Clark

Jordan Clark — Wed, 24 Sep 2008 17:53:46 +0000

Thanks very much Preet for the additional data.

I’m trying to figure out what would cause our market’s return to be less, when comparing in the native currency.

Is our market less efficient? Could it be caused by higher taxes? Or do you think it’s caused by the US dollar being the world’s reserve currency (since the currency adjusted numbers are fairly equal)?

Thanks

By: Traciatim

Traciatim — Wed, 24 Sep 2008 17:25:14 +0000

Hey Preet, do you happen to have a link to the original CREA study?

By: Preet

Preet — Wed, 24 Sep 2008 15:31:51 +0000

@CC – Simple price appreciation – not including rents. I agree that the gap would narrow (and you analogy is great!). I was more looking at it from the perspective of those who get big houses for themselves and don’t save externally, with the plan of downsizing in retirement and living off the built up equity. They wouldn’t be able to use any rent. Of course, they are more likely to stick to their plan than a stock market investor – so while they may earn a lower return on their “savings” they may come out further ahead than a stock investor who keeps getting in and out of the markets at the wrong times.

I know many real estate investors (buying residential with the intent of renting) who have done much better than stock market investors.

By: Canadian Capitalist

Canadian Capitalist — Wed, 24 Sep 2008 14:50:40 +0000

Preet: Do these returns include income from residential real estate in the form of imputed rents? If it doesn’t, it’s not an apples-to-apples comparison. Ignoring imputed rents is a bit like comparing bonds to stocks by ignoring the coupon payments from the bonds. Even if you include imputed rents in the calculation, I wouldn’t be surprised if real estate had less returns than stocks. But the return gap would be a lot narrower.

By: Preet

Preet — Wed, 24 Sep 2008 14:39:28 +0000

@Traciatim – I looked up the numbers for CPI from March 1988 to March 2008 and the number remains 2.40%. I’m not surprised that real estate keeps up and then some with inflation – one could argue that while we have a ways to go in Canada, we only have so much land whereas there are increasingly more people. Well, at least until the next plague. :P

Truth be told – while I put more stock into 20 year numbers versus 1 and 5 year numbers, some cycles are 20 years long (I believe currency is 17) – so the data could be looking at different phases for each index. Can’t really conclude anything based on that.

By: Preet

Preet — Wed, 24 Sep 2008 14:34:33 +0000

@Jordan – post now shows data for the other indices as requested.

By: Traciatim

Traciatim — Wed, 24 Sep 2008 14:23:16 +0000

What I find interesting is that generally housing is considered to follow inflation, but inflation from Aug 1998 to Aug 2008 according to the bank of Canada inflation calculator was running about 2.4% annually. It would seem to me, with this data, that housing is ahead of inflation generally across Canada.