Investment

How well homes have performed as an investment

Published

2 years ago

November 28, 2022

Harry Miller

Fred Lum/the Globe and Mail

If houses are investments, then they’re subject to the harsh math of investing losses.

However much an asset falls in price, it has to rise by a larger percentage just to get back to the starting point.

The national average resale home price peaked at $816,720 in February and has since fallen a bit more than 21 per cent to $644,463 in October. To get back to the peak, we need the average price to rise by almost 27 per cent. Figure on it taking between four and five years to do that, if prices bounce back enough to revive the toxic idea that houses are investments.

Treating houses as investments means the death of affordability. The longer prices decline or flatline, the more opportunity there will be for home ownership to remain a viable middle-class goal.

Still, the investment mentality is a big reason why our housing market overheated. Attention must be paid.

What houses have going for them as investments is a decades-long history of price appreciation that beat inflation, and a capital gains tax exemption on the sale of a principal residence. That tax break is a key support for the idea of housing as a financial asset.

There are steep costs if you own a home, including maintenance, improvements and mortgage interest. But never mind that. Houses have clearly been seen as a can’t-miss investment in the past two years. The only way to explain the questionable buying decisions made in 2021 is that people saw houses and condos soaring in value and wanted a piece of the action.

House prices are falling in many cities, which adds some gritty authenticity to the idea of houses as an investment. Stocks are investments and everyone knows they go up and down in value.

Let’s look at how a recovery in house prices might play out. The annualized average price gain from 1980 to 2021 for resale homes was 5.8 per cent, which is an impressive three percentage points above the average inflation rate for that period.

If houses appreciate at an average annual rate of 5.8 per cent for the next 4.5 years or so, the average resale price would exceed the February peak. With a growth rate in prices of 2.9 per cent, it would take about 8.5 years to recover.

You’re in better shape if you bought in 2020 or early 2021, when mortgage rates were cheap and pandemic lockdowns drove people to find homes with more living space. If you bought at the average national resale price in January, 2021, you’re ahead by 3.7 per cent ahead, based on the average resale price for October. A purchase at the average price in October, 2020, leaves you up about 6 per cent.

There’s plenty of investment goodness left in a home bought at the average of $525,000 in October, 2019 – current prices are cumulatively almost 23 per cent higher than that, or 7.1 per cent on a compound average annual basis.

Investment success in housing comes at the expense of affordability for people trying to buy into the market. Expect to see more of this, not less.

Further increases in mortgage rates could hold back a price recovery, but there’s growing evidence that we are close to the end for the current cycle of rate hikes. A recession is possible, but the consensus so far is that it will be a) mild, and b) unlikely to cause rampant unemployment, which is deadly for housing. We still have a very tight job market in some sectors.

A clear advantage for housing is that nearly 1.45 million immigrants are expected to come to Canada in the next three years, a big number for a country with a population of not much more than 38 million. Expect housing supply to increase in the years ahead, and expect it to be soaked up to some extent by newcomers to Canada.

The historical 5.8 per cent growth rate in Canadian house prices was powered by a decades-long trend of falling interest rates. We could see falling rates by late next year. TD Economics sees the Bank of Canada’s overnight rate falling in the fourth quarter of 2023, while the Government of Canada bond yields that influence fixed mortgage rates are expected to fall through the year.

A quick rebound in house prices would end the dream of home ownership for young adults in some big cities. Prices haven’t fallen enough yet to discredit the seemingly unshakable idea of houses as an investment.

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Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

7 days ago

November 6, 2024

Anne Joseph

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

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Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

4 weeks ago

October 16, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

1 month ago

October 11, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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