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.
This post was submitted by patriotz.
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July 21st, 2011 at 11:42 am
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!!
July 21st, 2011 at 3:04 am
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.<<<
http://www.bloomberg.com/news/2011-07-21/consumer…
You know what would help these people? Some news1130 style tips on what kind of recreational property they should buy with a million dollars.
July 21st, 2011 at 1:56 am
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. Or I can pay $640 for one month of texting! I’m sure you are aware that for $20 I can buy two US SIM cards for our phones, activate them, and have free initial US credit.
I have some idea what roaming should cost. Fido initially charged 25 cents a minute for US roaming, which is closer to where the rate should be.
Please get the message Rogers. Your roaming rates are too high. Customers are frustrated, and we are looking for alternatives. In the future, don’t waste customers time with such garbage. This is the most insulting email or offer I have received all year!
Thanks for considering this email and I look forward to your response.
Best regards,
July 21st, 2011 at 1:50 am
@Troll: "useless garbage"
“Economists give their predictions to a digit after the decimal point to show that they have a sense of humor" – Anon
July 21st, 2011 at 1:43 am
@jesse:
that reminds me of discussing petroleum engineering as a potential career option – "there's always the potential to risk massive amounts of capital."
July 21st, 2011 at 1:39 am
@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.
July 21st, 2011 at 1:35 am
@Troll: Upside risk. I think they mean upside potential. Risk the potential for permanent loss of capital.
July 21st, 2011 at 1:28 am
@specialfx3000:
>>>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.
July 21st, 2011 at 1:18 am
latest RBC housing report uses stronger language wrt to Van market…
http://www.rbc.com/economics/market/pdf/houseupda…
Nice summary of risks and upsides on bottom of page 5.
July 21st, 2011 at 1:07 am
@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.
July 21st, 2011 at 1:02 am
@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.
July 20th, 2011 at 11:27 pm
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.
July 20th, 2011 at 10:45 pm
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
July 20th, 2011 at 10:41 pm
Why we're on a fast track to the 1970s
I think there will be one significant difference if we do go back to double digit inflation – wages kept up back then, but they won't in the future.
Combine that with double digit interest rates and what does that do for house prices?