As we get closer to moving into our new home (and selling our existing one) I decided to look back on the financial return of our home purchase. I wish I hadn’t. On first glance, I think my house was a lousy investment.
We haven’t put our house on the market yet, but we will soon and I expect it to sell for somewhere between $500,000 and $549,000 (the range of outcomes has widened, especially to the downside, as the housing market slows down).
If it sells for $524,000, we’ll make $100,000 over the $424,000 that we initially paid for the house back in 2011. That sounds okay, but it represents just a 1.94% compound annual growth rate. Oof.
That already puts us at $464,000 and I haven’t included phantom (unrecoverable) costs such as property taxes, insurance, and maintenance.
Thankfully, the brand new house didn’t cost much in terms of ongoing maintenance over the last 11 years. I’m going to be generously low and put this at $1,000 per year for a total of $11,000.
We paid an average of $4,000 per year in property taxes ($44,000 total), and an average of $1,600 per year for insurance ($17,600). That’s another $61,600 in total unrecoverable costs that we paid as homeowners.
We made mortgage payments, on average, of $1,600 per month. Over 11 years that adds up to roughly $211,200. I’d estimate $50,000 of that went to interest costs and $161,200 towards the principal.
Finally, there’s also the opportunity cost of capital – the $88,000 down payment we put towards the house purchase back in 2011.
What If We Rented and Invested the Difference?
If we had invested that amount in a globally diversified portfolio of stocks and earned 8% per year (not unrealistic, considering the S&P 500 gained 14.4% from 2011 to 2021) that $88,000 would turn into roughly $190,000. Call it a $100,000 opportunity cost.
Let’s say we rented a house for the last 11 years, paying the equivalent of our total mortgage payment each month in rent. We invested our initial $88,000 lump sum, plus another $550 per month that we saved from not having to pay property taxes, insurance, and maintenance. We’d end up with about $295,000 by the end of 2021.
Also, don’t forget the extra $40,000 we spent on renovations and landscaping. Let’s say we just kept that in cash under our mattress. We’d have $335,000 in savings and investments today had we rented and invested / saved the difference.
Instead, we put that $88,000 towards a house. We put an additional $40,000 into the house to finish the basement and landscape the yards. And, we paid another $72,600 in phantom or unrecoverable costs over the past 11 years, plus another $50,000 in interest costs.
Not So Fast
To counter that, the majority of our mortgage payments went towards paying down the loan principal and so we have that $161,200, plus our initial downpayment of $88,000, built up in home equity. We can’t forget about that so-called forced savings.
Finally, we should include another expense – $20,000 in realtor fees after the sale of our house.
By my count, if we sell the house for $524,000, pay the realtor fees of $20,000, and pay off the remaining mortgage of $170,000, we’ll end up with about $334,000.
In the rent-and-invest-the-difference scenario, we’d end up with about $335,000.
In other words, in both the buying and renting scenarios our starting position was $88,000 in 2011, plus another $40,000 of capital invested between 2012 and 2013. Our ending position in 2022 will be around $335,000 either way.
I’d say it’s pretty clear the difference is negligible between the two outcomes, and most likely leans towards buying for some of the intangible benefits of home ownership.
Final Thoughts
Home ownership has been a clear winner for many Canadians over the past decade or longer, particularly for those living in BC and Ontario. For some, it has been like winning the real estate lottery.
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.
Was my house a lousy investment? After a closer look at the numbers it hasn’t been that bad.
More importantly, I don’t actually consider my primary residence to be an investment. It’s a lifestyle decision, more than anything.
We didn’t win the real estate lottery, but we spent 11 years living in a house we loved and we’re leaving it richer in both wealth and memories. That’s good enough for me.
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.
