Housing trumps stock market

 

I read a little snippet in Canadian House and Homes last week that indicated that real estate is still the best slow-and-steady investment.

 

It made me think a little I must admit, so I decided to do some of my own research. It is clearly an eternal debate that is not likely to end with this short discussion, but my personal beliefs have been more oriented to real estate investment than stock market.

 

The results of my research actually surprised me a little because the article was so bullish about real estate. The article referenced a source guide which once I finally found, left me completely confused and lost in a sea of wallpaper reference colours. I am not sure if it is the onset of dementia or a lingering A.D.D., but it has to be more simple than that for me to find what I am looking for! Clearly they had found some very simple facts that I could not easily reference so I did my own sourcing and crudely in my "A.D.D." way looked at the numbers and here they are:

 

The average home price in Canada in 1986 was approximately $94,000 and the TSX was hovering around the 3,000 mark.

 

Today the average home price is close to $360,000 and the TSX is hovering around 11,500.

 

The interesting part to me was that in fact the growth was very close to identical (in my simple "A.D.D." way) the multiplier is close to 380% simple growth. That was fascinating and it made me want to dig deeper into the list of sources in the Canadian House and Home magazine once more until I started to think of wading through a sea of paint references and wallpaper patterns.

 

The tipping point for me was pretty simple. With the real estate, you have two very important advantages over the stock market. The first is that you have the ability to generate cash flow with the investment. Put in a renter, let the asset move with the market and collect the rent. If you can't rent it, you are in roughly the same position as you would be with a stock market investment if we take the historical context as a reference. 

 

The second large advantage is that gains on your principal residence are sheltered from taxation, a huge plus over stock market gains. RRSP's and similar opportunities may defer tax but you still pay tax, depending on how you use the asset later.

 

So what turned out to be surprising in its similarity to me, ended up being a benefit to Joe and Suzy Homeowner.

 

Have a very Merry Christmas!