Toronto Real Estate returns report: 20 years of ROI - Q4 2017

Friday Jan 12th, 2018


Are you curious how your house or condo has appreciated over time compared to the average in the city? Or how those average price increases look versus the stock market? Well then you came to the right place. I've been compiling this after the June and December market statistics are released. Here's where you can find the posts for Q2 2017Q4 2016 and Q2 2016. I will show some of the charts in this blog post, but for the full picture, the entire report is available here on my website, or here on SlideShare.

Please note I'm not claiming this is a perfect comparison. Houses aren't a liquid asset like stocks or bonds. For most people a home is primarily purchased because we all need shelter. It's also a more emotional purchase (and sale) than buying a mutual fund for your RRSP. For most it's not a pure investment vehicle, though price appreciation is certainly a welcome benefit when it occurs. This is a simplified lookjust for fun, and to give a rough idea of performance versus major market indexes. For a pure investment standpoint, a more apples-to-apples comparison would need to account for the transaction fees (e.g. land transfer taxes, real estate commissions, legal fees, etc.), which can be significant but percentages vary a lot from transaction to transaction. Stocks should properly include dividend re-investment and also transaction fees. But again, just for fun.

Strong year for the stock markets

The housing numbers compare all transactions in Q4 versus Q4 the prior year. I realize that average prices have come down from their Q2 2017 peak, but despite a lot of that spring run-up being given back, the numbers are still up year over year. An increase of 4% is nothing to sneeze at, but it's pretty low compared to the S&P 500 and the MSCI World Index, which both had strong years. Keep in mind this "SOLD" sign represents all of Toronto real estate, so it's essentially a portfolio of houses and condos sold in the 416 area code (from Etobicoke to Scarborough and south of Steeles) in the last 12 months. In that way it's much like the indexes on this chart, which are a portfolio of top stocks. And like a stock index will have winners and losers, underlying that 3.9% real estate portfolio number, detached houses were down 2.9% and condo apartments were up 18.0%.

Toronto real estate shines in the long term views

Toronto Real Estate is very competitive in any 10-20 year views. In fact from 16 years out to 20 years out, it has the highest returns of the selected indexes. Things aren't as rosy as they were at the end of the peak Q2 quarter - for example the 10 year was at 7.8% then, and is now showing 6.3% (the 20 year has fallen slightly from 6.9% to 6.5%).

What's performed better, houses or condos?

The answer depends on your time frame. Given detached houses had a negative year in 2017, condo apartments have looked best in 1, 2, and 3 year views. A lot of that has been due to consistently low inventory.

But in every other view of longer than 3 years, detached houses have risen more than condos. I see the two main contributors to that as being:
1) The supply of houses isn't growing in Toronto, but there are more and more condos each day
2) The average size of condos has shrunk over the last 10 to 20 years. Pretend condos are represented by bronze medals (<600 sqft), silver medals (600-1000 sqft), and gold medals (>1000 sqft). There have been a lot more bronze medals added in the last 10 years. If you reached into a hat and pulled out 10 medals today, chances are you're pulling a lot more bronzes (the least expensive type) than you would've 10 years ago. So even if the average price of a medal has increased in the 10 years, that average price growth for the whole portfolio has been held back by the number of bronzes.

Here's how the different housing types compare to each other and to the TSX. With some strong annual run-ups in recent years, Toronto real estate has definitely outperformed the TSX, and long term it's been very competitive (I've left the MSCI World Index off because the chart is pretty crowded already). 

Dividends do make a difference 

Recall at the top I was saying that for a more apples-to-apples comparison you could include returns with dividends re-invested? I'm not hiding that information. The only reason I don't have that in my charts is that I don't know a good site to get those figures for the S&P/TSX and for the MSCI World Index. Subsequent to my initial posting of this I did come across a website where I can get dividend-inclusive info for the S&P 500. Here are the 5 / 10 / 15 / 20 year returns for the S&P 500 without dividends (just the index number, which I had been working off of) and with re-invested dividends after in brackets. All dating backwards from December 31, 2017:

5 year: 13.39% (15.82%)
10 year: 6.18% (8.49%)
15 year: 7.69% (9.90%)
20 year: 5.20% (7.17%)

So dividend re-investment added anywhere from 1.97% to 2.43%. Using the dividend-inclusive number, the S&P 500 number has outperformed the overall housing return in all the longer range periods in this selective time frame (chosen because I only have detailed monthly TREB data back to Jan 1996). Detached-only actually outperformed the S&P 500 dividends-inclusive number in the 20 year view at 7.7% to 7.2%, but of course houses have the high transaction costs as well. If anyone knows a good place to find returns inclusive of dividends for the TSX and MSCI World Index, please let me know and I'll use those figures for future editions of these posts.

More chart fun

Again, these were just excerpts. For more charts (with exciting annotations! and proper image dimensions), check out the full report on my website or on SlideShare.


About Scott Ingram CPA, CA, MBA

Would you like to make better-informed real estate decisions? I believe knowledge is power. For that reason I invest a lot of time researching and analyzing data and trends in the Toronto real estate market. My Chartered Accountant (CPA, CA) side also compels me to perform a lot more due diligence on properties my clients are interested in purchasing. If you have better information, you should have less risk and be in a position to make better decisions for your hundreds of thousands of dollars.

Your home is the single largest investment you'll make - trust it with an accountant.

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