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Discussion Starter #1
The title is a heading of an article in the September 18 issue of the Toronto Star.

It goes on to say that "Toronto house prices have posed an average gain of 7.1 per cent over the past 15 years. By contrast, the average annual 10-year gain of the S&P TSX is 5.4 per cent."

Dang--I took the wrong choice!!!

Plus, I could have lived in the house but what can I do with my stock statements?:eek:
 

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Living in a house in one thing, buying a house for investment is another

So houses went up by 7.1% during a boom.... and what about all the expenses?? Stock expenses pail in comparison
 

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And then there is the friction fees associated with property: 6% broker fees, land transfer fees, property taxes.
 

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am I missing something? I've seen a lot of these lately and they all seem to assume the house was purcahsed with cash?

What were mortgage rates over the last 15 years? If I'm paying 5-7% to the bank, why should I care about an increase of 7.1%...the interest just 'wiped' it out (making certain assumptions about the size of the mortgage of course). Or do the authors assume this 5% to the bank is just an expense and not part of the investment?
 

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It goes on to say that "Toronto house prices have posed an average gain of 7.1 per cent over the past 15 years. By contrast, the average annual 10-year gain of the S&P TSX is 5.4 per cent."

It was a pretty terrible article. Here's a link to it for those that haven't seen it.

First up, in your quoted part they used 15 years for the house prices, and 10 years for the TSX. That disparity in the timeframe immediately said cherry-picking to me. I don't have TSX data going back that far (even total-returns handy), but 10 years ago was the peak of the market, and now we're on the backside of another correction... the housing market has yet to correct. Even then, looking at 15 years back for both would make the comparison more favourable for equities. The S&P500 returned ~5.4%/yr in that time just in capital appreciation, and dividends would have added another what, 2-3%?

The current U.S. spectacle is unique.
What's happened in the US is not unique, the UK, Denmark, Spain... many other countries went through a similar housing correction for similar reasons. I think only Canada, Australia, and New Zealand have yet to join in the party.

He goes off to talk about American wages, but never comes back to address this important point:

And it’s true that Canadian home prices now equal between 4.7 times and 11.3 times the average buyer’s annual income. That’s far above the traditional “comfort zone” of three to four times.
And then he sprinkles in comparisons between Canada and the US, trying to distinguish us from them, but not allaying the concern that when we look south, we're gazing into the future.

am I missing something? I've seen a lot of these lately and they all seem to assume the house was purcahsed with cash?
They skip over a lot of assumptions in these types of articles. There were a few in the Globe a few months ago about how you were better off buying a condo if the mortgage payment was "not too much more" than your rent, ignoring all the other costs of buying vs renting. Then another one about a new condo project acknowledged that investors were buying units, and that at the mortgage payments would be higher than the current rents. The conclusion? Not that this condo building was severely over-priced, but that it was a clear signal that rents would be going up markedly in the next few years so that the investors could make a profit!
 

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Discussion Starter #6
And, as always, you have to take into account all of those dividend payments that you have received from your stock investments along the way.:rolleyes:
 

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All this housing as "investment" talk is nonsense.

My understanding is that if you look at mature economies with real estate records going back about 300 years, the net return on housing minus inflation is zero. Intuitively, this makes sense as it is still fundamentally just a house at the end of the day.

The same is basically true of gold although gold is even worse for two reasons. It pays no dividend and you actually have to pay money to store it.
 

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Terrible article. It read like a 4th quarter Hail Mary from the CREA to the Toronto Star in the end zone.
 

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I agree with other comments that the analysis is sloppy. The TSX Composite returned 9.26% over the past 15 years (dividends reinvested). Any housing analysis should also take into account the value of rent derived from an owner occupied home and net out maintenance costs, insurance etc.

Even if you accurately calculated the numbers, it is meaningless to compare past returns of any two asset classes. If you carefully pick the time period, you can show any asset, even cash, in a positive light compared to all others. However, basing a long-term investing strategy on short-period histories is not very wise.
 

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I agree with most of the comments.

I am sure if you can pick the time periods you could find any asset beats another asset.

1 decade stocks beat housing, next decade housing beats stocks...it is really quite silly.
 
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