# So what’s the total return for a Vancouver house?

Total return is a way of objectively comparing returns on different assets. The concept is simple – you buy an asset for \$X, use all income when received to buy more at the current market price, sell it all for \$Y, and your total return is Y/X. Annualized % is (Y/X)^(1/n)-1 where n is the number of years.

For example, you buy a 5 year compounding GIC at 3%, after 5 years it’s worth 1.03^5 = 1.16. Total return is 1.16 or 3% annualized (note not 16%/5).

When you have an asset with varying yield or price it gets more complicated. For stocks people like S&P calculate the total return for us. But for houses you have to do it yourself. What I decided to do is calculate the total return for a benchmark Vancouver house from 1985Q4 to 2010Q4, a 25 year period which saw the biggest price increase ever in Vancouver (or in most other places for that matter). Reinvestment of income is conceptually a bit of a problem as you can’t buy a “slice” of a house but that’s the way I’ll compute it because total return always does it that way.

My assumptions:
– quarterly prices as per UBC/Sauder. start 1985Q4: 160,100; end 2010Q4: 772,600
– starting rent \$1500/month
– starting taxes \$1800/year
– starting maintenance/insurance \$1800/year
– rent, taxes, maint/insurance rise with CPI which increased by 86% over the period

And at the end you have 2.29 “houses” which you sell for a total of \$1,769,254. Total return is 11.04 over 25 years which is 10.1% annually.

And what did the TSX 60 return over the same period? 9.5% annually.

Inline Feedbacks

coming back to buying equities on margin:

linked is a list of the few equities you can buy on reduced margin, only 30% down.
http://docs.iiroc.ca/DisplayDocument.aspx?Documen
as you can see, there are plenty of opportunities to trade on margin, similar to buying a house.

with IB, borrowing costs are lower than for a mortgage, under 1 mln CAD you pay prime + 1%, above that only prime +0.5%
http://individuals.interactivebrokers.com/en/p.ph

try to introduce that to your calculation!!

Tapped out U.S. consumers relying more and more on credit cards for necessities.

>>>“Consumers, particularly in the lower-income end, are being forced to use their credit cards for everyday spending like gas and food,” said Tavares, who’s based in Atlanta. “That’s because there’s been no other positive catalyst, like an increase in wages, to offset higher prices. It’s a cash-flow problem.”

Rising costs of food and gasoline are leaving Americans less money to spend discretionary items, slowing the pace of the recovery, Tavares said. Household spending accounts for about 70 percent of the world’s largest economy.<<<

You know what would help these people? Some news1130 style tips on what kind of recreational property they should buy with a million dollars.

This isn't housing related, but it is about as ridiculous…. I sent this to Rogers today. Dear Rogers, As a long term customer I am becoming more and more frustrated by your US calling, text and data roaming rates. Today I received the most insulting email I have ever received from Rogers titled “Unlimited Text Messaging When Travelling Stateside”. I was initially excited thinking that Rogers had finally got the message that Canadians shouldn’t have to pay ridiculous roaming rates when visiting their neighbor to the south. Then I read the details. You are charging \$10 for 24 hours of unlimited texting south of the border. That’s \$20 for me and my wife to have unlimited US texting for 24 full hours!!!! What a deal! I can now pay \$140 for 1 week of free texting south of the border.… Read more »

@Troll: "useless garbage"

“Economists give their predictions to a digit after the decimal point to show that they have a sense of humor" – Anon

@jesse:

that reminds me of discussing petroleum engineering as a potential career option – "there's always the potential to risk massive amounts of capital."

@jesse: I laughed at that too, but the overall summary is solid. The prediction of a 1.6% decline is useless garbage, might as well have made it 1.62% just to show how precise their models are.

@Troll: Upside risk. I think they mean upside potential. Risk the potential for permanent loss of capital.

>>>What would you do with a million dollars?

We conclude this week's our real estate series by asking the experts where they'd pick up property with that kind of money.<<<

Shame on those disgusting pumpers.

Most people are struggling to get by and don't want to hear this kind of fantasy crap.

latest RBC housing report uses stronger language wrt to Van market…

Nice summary of risks and upsides on bottom of page 5.

@Best place on meth: Hey you half wit, check out Jesse's stats from previous years. Not a stellar year for sales, but a pretty average July. Sharp contrast to your mantra that 'there are NO more buyers left'. Just pointing out your worthless cheerleading, just throw out some bearish statements, no thought required. Idiot.

@Troll:

You poor, poor worthless cheerleader – reduced to wetting your pants with excitement over one big sales day a month.

Don't forget to change your diaper.

Part 4 of 4 for this week's News1130 special report gives valuable insights from some experts on where they'd buy. (Experts being a mortgage broker and a Realtor. No shortages of experts around here)

I'll just post the link http://www.news1130.com/news/local/article/256626

Interestingly, even though I do not believe hearing 'Whistler' on the radio, somehow it made it onto the article.

Filling in for monthly sales predictions:

Average Sales 138

Total Sales 1789

Average Listings 271

Total Listings 3522

Average sell/list 51%

Days in month 20

Days elapsed 13

% days elapsed 65%

Expected sales 2,752

Expected listings 5,418

Previous sales

2005 3652

2006 2732

2007 3873

2008 2174

2009 4080

2010 2517

"The Chinese real estate market is booming, nonetheless, because property developers keep finding ways to finance construction — and wealthy Chinese investors keep buying. Empty buildings will often see units snapped up by out-of-town buyers, only to have "for rent" signs go up in the windows a short time later."

" Sold by Ponzi real estate developers… bought by Ponzi investors… a self-sustaining cycle in which prices go up because the buyers are making them go up. It's the "greater fool theory" in full effect."

I wonder how many Ponzi Investors make up the Vancouver market?

Wow, no more buyers eh BPOM?

New Listings 260

Price Changes 116

Sold Listings 236

TI: 16250

Vancouver East & West*

New Listings – 119

Back On Market Listings – 0

Price Changes – 27

Sold Listings – 70

Vancouver All Areas*

New Listings – 257

Back On Market Listings – 3

Price Changes – 114

Sold Listings – 232

*Attached & Detached – Date: 07/20/2011 Time:20:17 Pacific YatterMatters.com: Courtesy REBGV. Data believed to be accurate but is not guaranteed.

Anonymous Says:

Note: I am a bear. I just find that the amount that house prices are increasing by is greater than the amount most people can save & invest.

In my opinion, today's prices still largely represent the generous helping of 40 year ams projected forward and currently ZIRP. One is already gone and the other is obviously temporary. Well seasoned with a dash of local sentiment (emotion) and foreign money in some quarters and stirred regularly by the media. As time goes by feel free to come back, lift the spoon, and have a taste….RTP

You tellink me Gov'ts not pure as virgin snow ?

That's it …………back to Mainlaind China and my concubine beatch's

Only because the Competition Bureau beat them into submission, and even then only after the real estate boards fought tooth and nail to keep us in the dark. Scumbags.

Bring on Zillow.ca!

Someone kidnap Lavishing Lick ?

I tink these are coded messages …like fortune cookies notes.

OR

Do you want Firemen who can't get laid as rescuers ?

Not me !!!

Viagra has side effects….sleep during Canucks games…(maybe a taxable benefit) !

bout freaking time

totally ridiculous that it took so long