You should have seen the looks on the faces around the table. "You're not telling me that any equity investment you've held has doubled in three years." "Those kinds of stocks are super risky, besides, you'd be looking at only putting really small amounts of money into stocks, it's not like turning $200K into $400K." "Everyone knows RE is the best investment you can make for your family"
Well, apparently everyone forgot to tell Mr. Caspar, a man who actually gets paid to write and seems to me to be somewhat of a misfit in the MSM world: he's balanced in his writing and he doesn't give you a pump job. For that I say thanks, John.
Here's a great new article and a few highlights: (I'll link back to an earlier post done here too, only because they're eerily similar, non?)
in Canada's hottest real estate markets, it's tough to find anyone who isn't an expertWhat John doesn't point out directly in his article (he uses a period from 1977-2007 or 30 years for his comparison) is that in those thirty years, 11 years were bearish in equities while 17 years were bearish in real estate. In terms of percentages: 37% of the time you looked at your stock portfolio you were losing money during those 30 years while 57% of the time you received your BC Assessment notice your "fail-safe" RE "investment" was worth less than the previous year.
And [RE BULL MARKET] been going on for long enough that real estate as an investment has fallen into the "Everybody Knows…" category. You know: "Everybody knows that real estate is a safe investment", or "Everybody knows that real estate outperforms stocks", or "Everybody knows that you can't get hurt in real estate." Like that.
And as it turns out, the whole story about real estate as an investment isn't quite the same story that Everybody knows.
According to data from the Real Estate Board of Greater Vancouver, in the last thirty years the average price for a detached home had three bear market periods where it took at least two years for prices to recover to their previous high. After prices topped out and corrected in 1981, it took seven years to get back to those 1981 prices. Real estate investors were just getting back to "knowing" how great real estate was when prices peaked and corrected again in early 1990. It was 1992 before prices climbed back to where they were. And then, in early 1995, prices once again started downward. This time, it wasn't until 2003 until the market saw those 1995 prices again. That's right…in very recent history, it took the investment that Everybody believes in eight years to recover from a downturn.
So there it is. Three bears for real estate, with durations of 7, 2 and 8 years. Four bears for Canadian stocks, with durations of 2, 2, 2 and 5 years.
So what were the comparative returns for those two asset classes over those 30 years? Well, based on the data mentioned above, the average detached home in Greater Vancouver went from $80,000 in 1977 to $785,234 in (April) 2007. Wow. Can you believe the average Greater Vancouver home once cost 80 grand? And can you believe it's now nearly 10 times that?! That's a total return of about 882 percent, or an average annual return of nearly 8 percent. Nice!
if you had invested $80,000 in the index in 1977, it would be worth over $2.5 million in April 2007. That's more than 3,000 percent return, or an average of over 12 percent per year. Very handsome. And by the way, if you'd invested the same amount in the U.S. S&P 500 index, you'd have over $3.1 million in Canadian dollars today – a 3,825 percent return, or an average of 13 percent a year.
So, as it turns out, over the long run stocks do rather well compared to real estate. Of course, on an intuitive basis, you'd figure this out anyway, right? Because if Everybody knew they could make more money in the long run by simply owning real estate rather than owning resources companies and financial institutions and industrial firms and telecom companies, they'd never start, run or buy a company. And Everybody knows that's just silly.