Toronto Real Estate returns report: 20 years of ROI - Q2 2017
Friday Jul 28th, 2017
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. This is the third time I've compiled these numbers (following Q4 2016 and Q2 2016). I will excerpt some charts in this blog post, but the full report is available here on this website, or as a SlideShare presentation.
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 look, just 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.
Everyone made money last year
Over the last 12 months, it was hard to pick a loser for your money, with the major stock markets delivering returns in the 8-18% range. Toronto housing was right in the mix with 15.7% - even after giving back some Q1 gains over the last 3 months as the Toronto market softened. 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.
Toronto real estate shines in the long term views
Any views from 10 years out favour the Toronto real estate portfolio, which has sat in the 7% to 8% in that time, compared to 5% to 6% for the American and world indexes, and 1% to 5% for Canada's own TSX.
What's performed better, houses or condos?
The answer depends on your time frame. In the last 12 months, condo apartments have outperformed detached houses. This wouldn't necessarily have been true in March, but houses have declined in average price since that March/April peak, whereas condos have pretty much held their ground due to continued low inventory. So in the last 12 months, condo apartments (51% of Toronto's housing transaction volume in 2016) have had a 28% increase in average price compared to "only" 18% for detached houses.
But in every other view of longer than a year, 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 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 - as well as the other two major indexes listed at the top but not shown here (because the chart was getting crowded). Again, just because the last 20 years have played out this way, it doesn't mean the next 20 will favour real estate.
More chart fun