A warning on houses as an investment, houses have long been seen as a safe and reliable investment in Canada, so we have thought. However, with the changing economic landscape, it is important to be aware of the potential risks associated with investing in real estate. While the housing market has provided excellent returns in some areas in Canada over the past decade, there are still some areas in Canada that sees returns take years to crop and key warning signs that those considering investing in Canadian real estate should be aware of.
Financial planner Robb Engen did something bold the other day in his popular, long-running blog, Boomer & Echo. He laid bare the finances of his own home in a way that contradicts a core belief in Canadian personal finance.
Mr. Engen and his family plan to sell the Lethbridge, Alta., home they bought for $424,000 back in 2011. Based on a projected selling price of $524,000, he estimates a modest compound average annual growth rate of 1.94 per cent.
The idea that houses are an investment is foundational in Canadian real estate. Mr. Engen’s story shows us the need to think more about this. Some regions of the country never participated in the price surge of rent years, and prices on average are falling across the country. It could take years for the recent crop of home buyers to see prices appreciate much above what they paid.
The 1.94-per-cent average annual gain for Mr. Engen’s home represents the kind of analysis that most people do in sizing up the investment value of their real estate purchase. Mr. Engen, being a qualified associate financial planner (QAFP), dug deeper. First, he included costs like realtor fees, landscaping, renovations to finish the basement, property taxes and insurance. Then, he added the lost opportunity cost of investing the money used for a down payment on the house.
Final verdict: Owning the house produced pretty much the same financial result that would have been achieved by renting and investing the money saved by not being an owner.
Mr. Engen notes that house appreciation in B.C. and Ontario has been lottery-like for some buyers. “But for homeowners living in Alberta, Saskatchewan, or in Atlantic Canada, the math isn’t always as favourable. Home prices can stagnate for many years, and phantom costs eat into your returns over time.”
That’s a timely warning. The national average resale house price was down about 22 per cent from the February 2022 peak as of September, and now there’s a risk of the economy lapsing into recession. Prices may fall further or stagnate in locations around the country.
In the long term, houses can be expected to appreciate by an average annual amount that is equal to or a bit higher than inflation. We may get periods of double-digit gains like we saw in 2021, but that’s abnormal. Overly hot markets can turn overly cold.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
