I see, so you are borrowing 11 000 dollars a year to put into a TFSA while you use the TFSA investment income to pay rent?
You do realize you cannot borrow money to invest at the same rate as a mortgage unless you have a HELOC right? An unsecured line of credit will be higher than your investment rate of return most years.
In 1972, the Shangrila condos were built on Craigflower in Esquimalt. Those condos went for between $16K-$18K. A new condo in Fairfield on Linden in the same time frame went for approx $21K-$24K. 1940 style homes in the Gorge area were going for between $11K and $14K in the late 1960's.
That house in Point Grey area of Vancouver was certainly a deal at $16,000 in 1970!!
Dave, you need an asset to leverage... That's one of the key benefits to RE. No one will lend you anything remotely close to 300k without something to back it up.... It's just that simple. The only way you can run the comparison is to calculate your gains based on what you will contribute each year and subtract your taxes. (Or not if you are liting your amounts to a TFSA).
Dave, you can't take a graph of average values of real estate and say that represents actual investment returns. It's not like you're investing in an index for every piece of real estate in the world.
Look at real properties in real cities and you will see they behave very differently from the country-wide index.
I think the index stays constant mostly because more land is developed over time that starts out very cheap, so it brings down the averages to more or less constant. But buy a property in a city and 100 years later (assuming the city has developed and prospered) it will have gained in real value. Once you reach a plateau of development (like on the Herengracht Canal) then you can again expect zero real returns, but Victoria isn't there yet, and neither is probably any city in NA.
I can see we're not going to agree - stocks vs. RE. I completely understand why people believe it's RE (partly the recency effect) and I sometimes prefer they do. Bottom line, even if you decide not to leverage or use tax-free vehicles, stocks still vastly outperform RE's zero real gains over the long-term (see my previous links).
The part I'm trying to warn youngsters on, is the secular nature of RE. ~60 years of real gains, followed by ~60 years of real declines. It's obvious to me that we're closer to an 1894-type transition, from secular up to secular down. If you want more info on why - ie. demog, debt cycle (rates), etc - I can certainly show you much more how the secular nature of RE ties in with the secular nature of many other related variables. I've shared it with many and so far they all seem to get it.
As far as I know, the index is based on a composite of cities. Cities that have not changed much in densities over the last 100 years. I'm not sure where you're getting the country-wide idea?
Once you reach a plateau of development (like on the Herengracht Canal) then you can again expect zero real returns,
I'm curious - once you reach a development plateau, shouldn't that theoretically be the situation where you can finally realise constant real gains for the long-term?
The reason I say that is, historically it's partly the improvements in development and building technology that help keep the real gains near zero. So, no more development, no more disinflation of prices. Just a wild thought - I'm not trying to pick a fight on a sat. night ;)
Also as far as the case shiller data for the US, by all accounts the US is now quite undervalued, so I don't think they will stay near the zero real line very long
"once you reach a development plateau, shouldn't that theoretically be the situation where you can finally realise constant real gains for the long-term?" You have it backwards. This is why I bought in VicWest in 2003. As the neighbourhood gentrifies, the city finishes improving the roads, The Roundhouse development is built and they finish the bridge, my house value goes up independent of the general incline of values...
That house in Point Grey area of Vancouver was certainly a deal at $16,000 in 1970!!
Not really. As I mentioned it wasn't much of a house, although I remember little about it except the basement where you could see the naked electrical wires stretched between ceramic insulators through holes drilled in joists and studs.
In 1970, $16 K was the price of a 33' Point Grey lot. In Oak Bay the price was around $4000. By the time, several years later, we had moved to Victoria, prices had more or less doubled, and a standard Oak Bay lot then cost about $8K. So when you bought a house in Vancouver or Victoria you were paying mainly not for the land but the structure. Today, you pay up to ten times as much for the land as the structure, which in constant dollars probably hasn't changed much in price since the 70's.
We bought a house in OB for $68 K. The lot value was probably more than $8 K because it was a 100 foot lot, though not sub-dividable.
But the point is, that contrary to what some here seem to think, houses in the 60's and early seventies were much cheaper relative to incomes than at the start of the 2000-2013 run-up in prices.
We bought our OB house with 55 down and borrowed the balance of 13K for six months, after which we were debt free. Our family income of around 40K was decent, but certainly not exceptional.
The reason prices are so much higher now is that interest rates have fallen to about one fifth of what they were in the early 70's. This means that people have been able to borrow more and in so doing have bid up prices. In the 70's not only were house prices low but inflation rapidly diminished the real value of your mortgage debt.
Today the situation is the opposite. prices are crazy high and inflation may do little if anything for you. In fact, the danger faced by those who are highly leveraged is that their debt may increase relative to the value of their property.
The idea that RE appreciation will continue indefinitely seems highly questionably. What will drive prices higher? Wages are rising more slowly than any time in the last 50 years, jobs are being off-shored or automated away, young adults are increasingly loaded with student loans and mortgage interest rates can only fall another 2.79% before they'll have to pay you to borrow — an unlikely development.
What's happened has been terrific for the banks. Private debt has ballooned, the money created out of thin air by the financial institutions themselves. The result is that individuals are paying a large percentage of income to financial corporations, which is why the financial sector now gathers 40% of total corporate profits.
"I've shared it with many and so far they all seem to get it."
Thanks, but I'm good. I understand that you believe there is at least a 100 year cycle. I won't be around to see if that is true, but my mortgage will be paid off one way or the other.
It will be interesting to see if prices drop drastically without a rise in interest rates going forward.
@CS. Very interesting. Those days of easy money are likely over. The people that expect the future to be like the past will be very disappointed and many people that are counting on a house to be their ticket to wealth will be crushed. At the same time I don't see the impetus for a major decline (more than ~15%). Likely the time frame for worthwhile home ownership is approaching 10 years. If you're gonna sell the place earlier than that you're probably better off renting
Apologies if you were claiming "cities becoming less dense" - I can't remember (one too many merlots tonite). Anyhow you might have some research showing North American cities are densifying (putting upward pressure on price), but when I searched a while back, this is what I came across - if it's of any interest to you.
Our findings document that the distribution of city densities in the United States has shifted leftward since 1940; that is, cities are becoming less dense. This shift is not confined to any particular decade. ...distinct, steady trend toward less dense cities. This is evident across a number of different city definitions, and is robust across geographical regions and city age.
They either didn't compile or have the data previous to 1940.
and totoro, you'll be just fine. It sounds like you've done very well with your RE. Besides, the secular change doesn't necessarily mean nominal declines. And it's a wonderful thing for society as a whole - I think. Among other things, it refocuses our collective efforts towards innovating and producing things to make all our lives better.
"You want to invest it to set yourself up later in life. Option A is to open up two tax-free investment accounts (25K yours, 25K your fiancee) and leverage it to buy 300K worth of stocks". What do you mean by this? You only have 50k the leverage against. What bank will give you 250k?
"Option A has you and your fiancee using your stock dividends to pay your rent" Let's assume you average 3% dividend yield that's $9000/year. Since most of this will have to lie outside your TFSA let's just round down to 15% tax. That's $7650. Let's assume your rent is $637.50 because you are living with two roommates. Now what about your loan payments? Let's assume you found a bank to actually lend you 250k against your 50k to play the stock market. Let's assume they are generous and they give you 25 years at 4%. You still need another $1,315 a month to pay off your loan. Now if you bought a 3 bdrm place for 300k and had your same two roommates, they are paying you $1,275/month. Let's take 15% tax from that to make it simple. So they are paying $1083.75 of your $1,315 mortgage. Meaning you only pay $231.25/month. Since you could afford $1,952.50/month you are now left with 1,721.25/month to invest. If you put it to the mortgage you will pay it off in 8 years. Then you could kick your roommates out ;-)
I normally gloss over your trolling dasmo, but I'll quickly humour you before bed so you don‘t feel left out ;) I'm trying to point out the obvious that stocks beat RE hands down
Quick glance, you've omitted a bout a dozen expenses to ownership and - did you real;y just say two roomates are going to pay you $1275 to live in your 3bd 300K house??? Okey dokey, this fantasy trip is over - are you drunk too btw ;)
I agree with you Leo. I think 10 years is about the right timeframe for home ownership to hedge against declines. Given the long run up, if prices do not drop I don't see how there can be another run up short-term.
Drop a lot DavidL. I don't know where we are right now exactly but it is not a significant decline as reflected in listings in OB at least.
Looking at the overall chart of the rise and fall of real estate prices there are drops, and then there are over the cliff drops. Given the big rise up I would expect a small decline with no real rise in prices for up to 10 years unless interest rates rise.
But that is just my theory and the US had a big drop without interest rates going up.
Dave, I was simplifying since your outline for success did not include any other expenses like tenents insurance, or tading and management fees. Not to mention the growth of the DJIA includes dividends being reinvested, not being withdrawn....
the growth of the DJIA includes dividends being reinvested, not being withdrawn....
Not true. The link I posted showing roughly ~700% returns was not total returns (means dividends reinvested). Totoro assumed the same thing. If you reinvested the dividends it would be in somewhere in the thousands of percent real return. But nice try.
I don't see the impetus for a major decline (more than ~15%).
So what causes a major decline?
In the US, the crash was preceded by 17 Fed rate increases, but continued when rates were droppped to to near zero.
In Canada, in the 80's the crash was preceded by interest rate increases.
But is the interest rate increase prerequisite, or is a decline, however initiated, autocatalytic?
A decline in Victoria has begun, even as interest rate continue to decline, so we'll see.
The incentive to buy now or be priced out for ever has gone.
The incentive to buy for immediate capital appreciation has gone.
The willingness of those trading up to buy before they sold must be greatly reduced.
Fear of rapid capital losses must be growing.
Question is, are these factors sufficient to cause a collapse?
Just Jack's Oak Bay data are consistent with what's to be seen in our neighborhood. Old listings seem to have become a permanent features of the landscape, new listings are turning into old listings, and open houses seen sparsely attended.
Academics aside most well off individuals with low to moderate incomes that I have met have done it via real estate.
Do you think that has something to do with:
1. You being young. 2. You being a RE agent. 3. Canada and Victoria having an unprecedented RE bubble over the last decade.
Someone working in the tech field could have said the same about stocks in 2000. As just like people owning RE today, they didn't actually make any money unless they sold.
I think 10 years is about the right timeframe for home ownership to hedge against declines.
Well we've only got 3 years to see whether your theory will work south of the border. It already hasn't worked in Whistler, but I won't claim that represents anything.
CS: I pretty well agree with most of what you say.
In 1974 The average family income in Canada was $49,668. The average unattached individuals average was $20,422.
A typical new spec home in the Mount Doug area in 1974 was around $36,000. Typically the banks would lend you 1/3 of your household income times 3 years. If your wife worked they only included half of her income in the calculation).
In 1973 Canadian chartered banks conventional 5 year mortgage rate was 9%. You might get some trimmed off of that....but there weren't the brokerages and on-line banks then that there are today.
Victoria and Vancouver were much more in line with other cities across Canada in the 60's & early 70's. Toronto had the highest home prices and Ottawa was also higher priced than Victoria and Vancouver.
In 2010 the Median total income per household was $69,860 in Canada and $66,970 in B.C. In 2012 the Chartered Banks conventional 5 year mortgage rate was 5.29%. But with all the on-line banks & brokers now you could most definitely get a cheaper one. The average SE home in the Gordon Head area right now is selling for $572,000. (The banks now include 100% of both incomes in their calculations!)
Patriotz: I can't find actual average income for 1974, but I would guestimate around $12,000K for males and $8000K for females if they were working full time.
Well we've only got 3 years to see whether your theory will work south of the border.
Well that is from peak. I would argue we're just about 3 years into our correction, so 10 years would be 13 years after peak, which would make it significantly longer than previous corrections.
It is interesting that in a market like Seattle, the affordable house (30% of income) at today's interest rates is actually more expensive than the values at their peak.
Here are some neat stats for those of you that are interested:
Historical minimum wages in Manitoba:
1921: .25 for females & boys under 18.
1945: .35 for Males .30 for Females
1952: .50 for Males .44.4 for Females
1960: .66 for all 1966: 1.00 1970: 1.50 1980: 3.15 1991: 5.00 2012 10.25
Federal Government and B.C.:
1965: $1.25 Fed $1.00 BC 1970: $1.65 Fed $1.50 BC 1974: $2.20 Fed $2.50 BC 1981: $3.50 Fed $3.65 BC 1996: $6.00 BC 2001: $8.00 BC 2012: $10.25 BC
Back in the early to mid 1970's, salaried entry level (Clerk 1) employees (mostly women), earned the Federal Government minimum wage. My cousin was one of them.
@Dave, A growth chart usually includes dividends re-invested. For instance: Andex chart
The DJIA is a straight up price index but the dow picks and choses it's stocks it includes so it's a little like picking cities and neighbourhoods with the maximum gains to formulate a RE index...
Anyway, we agree in principle. I would also recommend that a person under 30 have roommates, rent, and invest. That's what I did ;-)
I just couldn't let your borrowing 250k to invest in the stock market as a comparison fly by....
Sure, although the one I used for the comparison didn't reinvest dividends.
They're not easy assets to compare. And you're right it may be hard to borrow extra near the same rate as a mortgage - if so, then may want to only add the allowable 11K per year.
One last thing, you mentioned management fees. My example had the 18 year-old simply buying the 30 Dow stocks and holding long-term. So really the only cost would be maybe an hour to open the TF account, and $30 a year ($1 per trade) to buy a bunch of each Dow stock (most would at least agree stocks have cheaper transaction costs).
Anyhow, I don't mind if we agree to disagree on the whole stocks vs. RE. I know I'm not going to change anyone's mind on it. There are opportune times for both.
Personally I don't question that stocks over the long run have greater return than real estate. I question 0% real return on real estate in North America. The land here was for the most part taken for free (or nearly so) from the previous inhabitants. 100 years ago you could still homestead and get land for the cost of registration in western Canada.
A little nuance here - if the investment vehicle you invest in is leveraged then you essentially have the same result. i.e. you buy stocks in a leveraged company, and most are, you are essentially leveraged.
So if you have over E100K stashed in Cyprus you are royally screwed. This is a game changer when a country steals funds from account holders to pay for the irresponsible behaviour of it's politicians and banks. A small country with little economic impact on the Eurozone but anyone living in an overly indebted nation should be paying attention.
243 comments:
«Oldest ‹Older 201 – 243 of 243I see, so you are borrowing 11 000 dollars a year to put into a TFSA while you use the TFSA investment income to pay rent?
You do realize you cannot borrow money to invest at the same rate as a mortgage unless you have a HELOC right? An unsecured line of credit will be higher than your investment rate of return most years.
In 1972, the Shangrila condos were built on Craigflower in Esquimalt. Those condos went for between $16K-$18K. A new condo in Fairfield on Linden in the same time frame went for approx $21K-$24K. 1940 style homes in the Gorge area were going for between $11K and $14K in the late 1960's.
That house in Point Grey area of Vancouver was certainly a deal at $16,000 in 1970!!
Dave, you need an asset to leverage... That's one of the key benefits to RE. No one will lend you anything remotely close to 300k without something to back it up.... It's just that simple. The only way you can run the comparison is to calculate your gains based on what you will contribute each year and subtract your taxes. (Or not if you are liting your amounts to a TFSA).
Dave, you can't take a graph of average values of real estate and say that represents actual investment returns. It's not like you're investing in an index for every piece of real estate in the world.
Look at real properties in real cities and you will see they behave very differently from the country-wide index.
I think the index stays constant mostly because more land is developed over time that starts out very cheap, so it brings down the averages to more or less constant. But buy a property in a city and 100 years later (assuming the city has developed and prospered) it will have gained in real value. Once you reach a plateau of development (like on the Herengracht Canal) then you can again expect zero real returns, but Victoria isn't there yet, and neither is probably any city in NA.
totoro,
I can see we're not going to agree - stocks vs. RE. I completely understand why people believe it's RE (partly the recency effect) and I sometimes prefer they do. Bottom line, even if you decide not to leverage or use tax-free vehicles, stocks still vastly outperform RE's zero real gains over the long-term (see my previous links).
The part I'm trying to warn youngsters on, is the secular nature of RE. ~60 years of real gains, followed by ~60 years of real declines. It's obvious to me that we're closer to an 1894-type transition, from secular up to secular down. If you want more info on why - ie. demog, debt cycle (rates), etc - I can certainly show you much more how the secular nature of RE ties in with the secular nature of many other related variables. I've shared it with many and so far they all seem to get it.
Leo S,
As far as I know, the index is based on a composite of cities. Cities that have not changed much in densities over the last 100 years. I'm not sure where you're getting the country-wide idea?
Once you reach a plateau of development (like on the Herengracht Canal) then you can again expect zero real returns,
I'm curious - once you reach a development plateau, shouldn't that theoretically be the situation where you can finally realise constant real gains for the long-term?
The reason I say that is, historically it's partly the improvements in development and building technology that help keep the real gains near zero. So, no more development, no more disinflation of prices. Just a wild thought - I'm not trying to pick a fight on a sat. night ;)
I dont think you will find any city in North America that hasn't changed much in density in 100 years.
Also as far as the case shiller data for the US, by all accounts the US is now quite undervalued, so I don't think they will stay near the zero real line very long
"once you reach a development plateau, shouldn't that theoretically be the situation where you can finally realise constant real gains for the long-term?"
You have it backwards. This is why I bought in VicWest in 2003. As the neighbourhood gentrifies, the city finishes improving the roads, The Roundhouse development is built and they finish the bridge, my house value goes up independent of the general incline of values...
That house in Point Grey area of Vancouver was certainly a deal at $16,000 in 1970!!
Not really. As I mentioned it wasn't much of a house, although I remember little about it except the basement where you could see the naked electrical wires stretched between ceramic insulators through holes drilled in joists and studs.
In 1970, $16 K was the price of a 33' Point Grey lot. In Oak Bay the price was around $4000. By the time, several years later, we had moved to Victoria, prices had more or less doubled, and a standard Oak Bay lot then cost about $8K. So when you bought a house in Vancouver or Victoria you were paying mainly not for the land but the structure. Today, you pay up to ten times as much for the land as the structure, which in constant dollars probably hasn't changed much in price since the 70's.
We bought a house in OB for $68 K. The lot value was probably more than $8 K because it was a 100 foot lot, though not sub-dividable.
But the point is, that contrary to what some here seem to think, houses in the 60's and early seventies were much cheaper relative to incomes than at the start of the 2000-2013 run-up in prices.
We bought our OB house with 55 down and borrowed the balance of 13K for six months, after which we were debt free. Our family income of around 40K was decent, but certainly not exceptional.
The reason prices are so much higher now is that interest rates have fallen to about one fifth of what they were in the early 70's. This means that people have been able to borrow more and in so doing have bid up prices. In the 70's not only were house prices low but inflation rapidly diminished the real value of your mortgage debt.
Today the situation is the opposite. prices are crazy high and inflation may do little if anything for you. In fact, the danger faced by those who are highly leveraged is that their debt may increase relative to the value of their property.
The idea that RE appreciation will continue indefinitely seems highly questionably. What will drive prices higher? Wages are rising more slowly than any time in the last 50 years, jobs are being off-shored or automated away, young adults are increasingly loaded with student loans and mortgage interest rates can only fall another 2.79% before they'll have to pay you to borrow — an unlikely development.
What's happened has been terrific for the banks. Private debt has ballooned, the money created out of thin air by the financial institutions themselves. The result is that individuals are paying a large percentage of income to financial corporations, which is why the financial sector now gathers 40% of total corporate profits.
We are in a world of debt slavery.
"I've shared it with many and so far they all seem to get it."
Thanks, but I'm good. I understand that you believe there is at least a 100 year cycle. I won't be around to see if that is true, but my mortgage will be paid off one way or the other.
It will be interesting to see if prices drop drastically without a rise in interest rates going forward.
@CS. Very interesting. Those days of easy money are likely over. The people that expect the future to be like the past will be very disappointed and many people that are counting on a house to be their ticket to wealth will be crushed. At the same time I don't see the impetus for a major decline (more than ~15%). Likely the time frame for worthwhile home ownership is approaching 10 years. If you're gonna sell the place earlier than that you're probably better off renting
Leo S
Apologies if you were claiming "cities becoming less dense" - I can't remember (one too many merlots tonite).
Anyhow you might have some research showing North American cities are densifying (putting upward pressure on price), but when I searched a while back, this is what I came across - if it's of any interest to you.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2186639
Our findings document that the distribution of city densities in the United
States has shifted leftward since 1940; that is, cities are becoming less dense.
This shift is not confined to any particular decade.
...distinct, steady trend toward less dense cities. This is evident across a number of different city definitions, and is robust across geographical regions and city age.
They either didn't compile or have the data previous to 1940.
and totoro, you'll be just fine. It sounds like you've done very well with your RE. Besides, the secular change doesn't necessarily mean nominal declines. And it's a wonderful thing for society as a whole - I think. Among other things, it refocuses our collective efforts towards innovating and producing things to make all our lives better.
"You want to invest it to set yourself up later in life. Option A is to open up two tax-free investment accounts (25K yours, 25K your fiancee) and leverage it to buy 300K worth of stocks". What do you mean by this? You only have 50k the leverage against. What bank will give you 250k?
"Option A has you and your fiancee using your stock dividends to pay your rent" Let's assume you average 3% dividend yield that's $9000/year. Since most of this will have to lie outside your TFSA let's just round down to 15% tax. That's $7650. Let's assume your rent is $637.50 because you are living with two roommates. Now what about your loan payments? Let's assume you found a bank to actually lend you 250k against your 50k to play the stock market. Let's assume they are generous and they give you 25 years at 4%. You still need another $1,315 a month to pay off your loan.
Now if you bought a 3 bdrm place for 300k and had your same two roommates, they are paying you $1,275/month. Let's take 15% tax from that to make it simple. So they are paying $1083.75 of your $1,315 mortgage. Meaning you only pay $231.25/month. Since you could afford $1,952.50/month you are now left with 1,721.25/month to invest. If you put it to the mortgage you will pay it off in 8 years. Then you could kick your roommates out ;-)
I normally gloss over your trolling dasmo, but I'll quickly humour you before bed so you don‘t feel left out ;) I'm trying to point out the obvious that stocks beat RE hands down
Quick glance, you've omitted a bout a dozen expenses to ownership and - did you real;y just say two roomates are going to pay you $1275 to live in your 3bd 300K house??? Okey dokey, this fantasy trip is over - are you drunk too btw ;)
I agree with you Leo. I think 10 years is about the right timeframe for home ownership to hedge against declines. Given the long run up, if prices do not drop I don't see how there can be another run up short-term.
And here I thought you were the troll Dave!
@totoro
Given the long run up, if prices do not drop...
Are you suggesting that prices haven't dropped?!
Drop a lot DavidL. I don't know where we are right now exactly but it is not a significant decline as reflected in listings in OB at least.
Looking at the overall chart of the rise and fall of real estate prices there are drops, and then there are over the cliff drops. Given the big rise up I would expect a small decline with no real rise in prices for up to 10 years unless interest rates rise.
But that is just my theory and the US had a big drop without interest rates going up.
A Samuel Maclure mansion along Newport Avenue in Oak Bay sold in March 2007 for $3,535,000.
This month the property re-sold for $2,800,000
Of the 15 properties to sell this month in Oak Bay - 7 sold below their BC assessed value.
Oak Bay is different - you have a lot more to lose.
Dave, I was simplifying since your outline for success did not include any other expenses like tenents insurance, or tading and management fees. Not to mention the growth of the DJIA includes dividends being reinvested, not being withdrawn....
The data is what it is - thank goodness for stats. Lets see where we are year over year for the median after the spring market.
the growth of the DJIA includes dividends being reinvested, not being withdrawn....
Not true. The link I posted showing roughly ~700% returns was not total returns (means dividends reinvested). Totoro assumed the same thing.
If you reinvested the dividends it would be in somewhere in the thousands of percent real return.
But nice try.
@Leo S
I don't see the impetus for a major decline (more than ~15%).
So what causes a major decline?
In the US, the crash was preceded by 17 Fed rate increases, but continued when rates were droppped to to near zero.
In Canada, in the 80's the crash was preceded by interest rate increases.
But is the interest rate increase prerequisite, or is a decline, however initiated, autocatalytic?
A decline in Victoria has begun, even as interest rate continue to decline, so we'll see.
The incentive to buy now or be priced out for ever has gone.
The incentive to buy for immediate capital appreciation has gone.
The willingness of those trading up to buy before they sold must be greatly reduced.
Fear of rapid capital losses must be growing.
Question is, are these factors sufficient to cause a collapse?
Just Jack's Oak Bay data are consistent with what's to be seen in our neighborhood. Old listings seem to have become a permanent features of the landscape, new listings are turning into old listings, and open houses seen sparsely attended.
Academics aside most well off individuals with low to moderate incomes that I have met have done it via real estate.
Do you think that has something to do with:
1. You being young.
2. You being a RE agent.
3. Canada and Victoria having an unprecedented RE bubble over the last decade.
Someone working in the tech field could have said the same about stocks in 2000. As just like people owning RE today, they didn't actually make any money unless they sold.
I think 10 years is about the right timeframe for home ownership to hedge against declines.
Well we've only got 3 years to see whether your theory will work south of the border. It already hasn't worked in Whistler, but I won't claim that represents anything.
CS: I pretty well agree with most of what you say.
In 1974 The average family income in Canada was $49,668. The average unattached individuals average was $20,422.
A typical new spec home in the Mount Doug area in 1974 was around $36,000. Typically the banks would lend you 1/3 of your household income times 3 years. If your wife worked they only included half of her income in the calculation).
In 1973 Canadian chartered banks conventional 5 year mortgage rate was 9%. You might get some trimmed off of that....but there weren't the brokerages and on-line banks then that there are today.
Victoria and Vancouver were much more in line with other cities across Canada in the 60's & early 70's. Toronto had the highest home prices and Ottawa was also higher priced than Victoria and Vancouver.
In 2010 the Median total income per household was $69,860 in Canada and $66,970 in B.C. In 2012 the Chartered Banks conventional 5 year mortgage rate was 5.29%. But with all the on-line banks & brokers now you could most definitely get a cheaper one. The average SE home in the Gordon Head area right now is selling for $572,000. (The banks now include 100% of both incomes in their calculations!)
In 1974 The average family income in Canada was $49,668. The average unattached individuals average was $20,422.
Certainly not in nominal dollars.
A typical new spec home in the Mount Doug area in 1974 was around $36,000.
But that is.
Patriotz: You are right, the incomes for 1974 have been adjusted for inflation. I meant to say that.
Patriotz: I can't find actual average income for 1974, but I would guestimate around $12,000K for males and $8000K for females if they were working full time.
Well we've only got 3 years to see whether your theory will work south of the border.
Well that is from peak. I would argue we're just about 3 years into our correction, so 10 years would be 13 years after peak, which would make it significantly longer than previous corrections.
It is interesting that in a market like Seattle, the affordable house (30% of income) at today's interest rates is actually more expensive than the values at their peak.
And given their red hot market, it would seem people do realize the value there.
Here are some neat stats for those of you that are interested:
Historical minimum wages in Manitoba:
1921: .25 for females & boys
under 18.
1945: .35 for Males
.30 for Females
1952: .50 for Males
.44.4 for Females
1960: .66 for all
1966: 1.00
1970: 1.50
1980: 3.15
1991: 5.00
2012 10.25
Federal Government and B.C.:
1965: $1.25 Fed $1.00 BC
1970: $1.65 Fed $1.50 BC
1974: $2.20 Fed $2.50 BC
1981: $3.50 Fed $3.65 BC
1996: $6.00 BC
2001: $8.00 BC
2012: $10.25 BC
Back in the early to mid 1970's, salaried entry level (Clerk 1) employees (mostly women), earned the Federal Government minimum wage. My cousin was one of them.
@Dave,
A growth chart usually includes dividends re-invested. For instance: Andex chart
The DJIA is a straight up price index but the dow picks and choses it's stocks it includes so it's a little like picking cities and neighbourhoods with the maximum gains to formulate a RE index...
Anyway, we agree in principle. I would also recommend that a person under 30 have roommates, rent, and invest. That's what I did ;-)
I just couldn't let your borrowing 250k to invest in the stock market as a comparison fly by....
Sure, although the one I used for the comparison didn't reinvest dividends.
They're not easy assets to compare. And you're right it may be hard to borrow extra near the same rate as a mortgage - if so, then may want to only add the allowable 11K per year.
One last thing, you mentioned management fees. My example had the 18 year-old simply buying the 30 Dow stocks and holding long-term. So really the only cost would be maybe an hour to open the TF account, and $30 a year ($1 per trade) to buy a bunch of each Dow stock (most would at least agree stocks have cheaper transaction costs).
Anyhow, I don't mind if we agree to disagree on the whole stocks vs. RE. I know I'm not going to change anyone's mind on it. There are opportune times for both.
Monday, March 25, 2013 8:00am
MTD March
2013 2012
Net Unconditional Sales: 382 570
New Listings: 980 1,385
Active Listings: 4,267 4,274
Please Note
Left Column: stats so far this month
Right Column: stats for the entire month from last year
thanks, Marko. Appreciate your sharing.
Real Estate vs Stocks?
Personally I don't question that stocks over the long run have greater return than real estate. I question 0% real return on real estate in North America. The land here was for the most part taken for free (or nearly so) from the previous inhabitants. 100 years ago you could still homestead and get land for the cost of registration in western Canada.
"Are you buying stocks with leveraged dollars"
A little nuance here - if the investment vehicle you invest in is leveraged then you essentially have the same result. i.e. you buy stocks in a leveraged company, and most are, you are essentially leveraged.
So if you have over E100K stashed in Cyprus you are royally screwed. This is a game changer when a country steals funds from account holders to pay for the irresponsible behaviour of it's politicians and banks. A small country with little economic impact on the Eurozone but anyone living in an overly indebted nation should be paying attention.
"Anyone have any personal stories about houses purchase around 1960 to get a feel for the prices back then?"
A couple houses on Howe Street, in Fairfield, between Dallas Road and Faithful St. sold for between $11,000 and $13,000 around 1964-65.
Half a block from the ocean, a nice 4 bedroom, three bath, full basement home for $12,000. I still kick myself for not buying it!!!
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