Invest Well. Live Well: Real estate versus the stock market

We often hear "You can't lose with real estate” or "Real estate is a better investment than the stock market."

While at certain points in time, this may be true, over the long run you might be surprised how they have played out.

article continues below

Before we go any further, we feel it is important to mention that we are believers in real estate. Between our families, we own residential, rental and recreational properties.

RBC conducted research from January 1993 to December 2018, comparing real estate returns in several Canadian cities versus the Canadian stock market. Below are their returns:

Invest Well

How has Kamloops fared? According to crea.ca, as of August 2019, the current year-to-date average sale price in Kamloops is $419,464. Going back to January 2010, it was roughly $315,000. That growth of $104,000 in just over 9.5 years equates to an annual return of three per cent. According to Thompson Reuters, the TSX during the same period returned five per cent excluding dividends. 

Stock market returns do not include investment fees or taxes. Real estate returns do not factor in rental income or home ownership costs such as mortgage, insurance, upkeep, property transfer tax, legal fees or property tax. 

An often-overlooked risk in real estate is government intervention. A few recent examples include the addition of B.C.’s 20 per cent foreign buyer tax (previously 15 per cent), the province’s speculative tax up to two per cent and the City of Vancouver's empty home Tax up to one per cent of assessed value. Interest rate policy, as well as stricter mortgage lending rules, have also affected Canada's housing market broadly. 

So, why the difference in psychology between stocks and real estate? Maybe it is because real estate is tangible. You can see it, walk through it and have the keys that go with it. Perhaps it's because you can sell a stock in just a few clicks, whereas real estate has a longer sale process. Potentially, the costs of buying and selling real estate deter investors from selling in a panic. In the end, the objective is the same: to invest in assets that will grow over the long term and increase your wealth. 

We like to remind all investors that: 

1. We believe owning a home is financially prudent.

2. Because a home is often on’s’ largest portion of their net worth, we encourage investors to diversify.

3. Historically, the Canadian and U.S. stock markets have outperformed real estate.

4. During certain periods, there can be over- or under-performance from any of these three assets.

There are precautions that need to be taken with investing, whether in the markets or buying a rental property. As always, we recommend you consult with a professional advisor beforehand.

Until next time, invest Well. Live Well.

This document was prepared by Eric Davis, vice-president, portfolio manager and investment advisor, and Keith Davis, investment advisor, for informational purposes only and is subject to change. The contents of this document are not endorsed by TD Wealth Private Investment Advice, a division of TD Waterhouse Canada Inc.-Member of the Canadian Investor Protection Fund. All insurance products and services are offered by life licensed advisors of TD Waterhouse Insurance Services Inc., a member of TD Bank Group. For more information, call 250-314-5124 or email Keith.davis@td.com. This column was written by Keith Davis.

© Kamloops This Week