Home Prices vs. Stock Values: Which has Done Better since 2007?

About 23% of Canadians who do not currently own an investment property say they plan to buy one in the next 5 years. That’s according to a new Royal LePage survey published this week. During a television interview on BNN Bloomberg, the Royal LePage CEO said “I did it when I was younger”, which was quite the telling comment.

Sure, there’s something to be said for owning your principal residence. It’s exempt from taxes, you save money on rent not paid, and there’s an insatiable appetite for real estate when you’re ready to sell. After all, the federal government hopes to immigrate 500,000 new people by 2025. Today, 68% of Canadians own their own living space while most of the remaining 32% would purchase if the conditions were in their favour.

That’s the case for owning your first property. But what about the second?

While 4.4 million Canadians (representing 11% of the country) are landlords, we believe you’re better off investing extra savings in high quality, dividend-paying stocks.

Here are some things to consider.

First, the MLS (multiple listing service) Home Price Index for Canada says that between January 2007 – the year before the financial recession started – and the end of 2022, prices rose 4.7% per annum. By comparison, the S&P 500 appreciated by 6.6% (excluding dividends) over the same time horizon – just about 20% better in stocks than real estate.

Second, most real estate investments are financed with a mortgage. Today, you’re looking at paying about 5% to take on a mortgage from a reputable bank.

Third, and even worse than these numbers, have you ever received a phone call at 3:00am on a holiday weekend from a tenant saying the hot water is shot? Or the roof is leaking? You don’t want that call.

Fourth, when you’re ready to sell the investment property, be prepared to stage the place, negotiate back and forth with real estate agents, field multiple offers, and hire movers to haul items from A to B.

Owning stocks accompanies none of these inconveniences. If you want out, press “sell” and the stock is gone. You have no obligations as a shareholder other than to ethically report your transactions at tax time. Most importantly, the price appreciation has been better than real estate over the last 15 years.