Photo: Sam valadi/Flickr
A recent number-crunching exercise from an investment advisor with one of Canada’s biggest banks suggests the American stock market provided better returns than Vancouver real estate over the past decade.
In a recent column penned for Business In Vancouver, Jeff Boomer of RBC Wealth Management compares the performance of the Standard and Poor’s 500 Total Return Index — which tracks 500 stock performances for large companies across top American industries — and Vancouver home prices, as reported by the Canadian Real Estate Association.
The index offered returns of 15.9 percent compounded annually between March 2009 and this March. “That’s like turning $1 million into $4.4 million over 10 years!” Boomer exclaims.
Boomer ran the numbers for both condos and detached homes, and in each case compound annual returns were around 10 percent (9.8 percent for a condo versus 10.5 percent for a detached home).
The whole exercise relies on lots of assumptions. For starts, the S&P index assumes that an investor reinvests their dividends back into their stocks.
For condos, which increased in price from $326,200 to $656,900 over the study period, Boomer accounted for monthly rent incomes of $1,348, property taxes of $1,500 a year, and monthly maintenance fees of $340.
For detached homes — these saw prices soar over 10 years to $1,441,000, up from $692,400 — Boomer assumed monthly rents of $3,370, annual property taxes at $3,241 and maintenance costs of $850 per month.
The study didn’t factor in the costs related to the transactions or property management, fees you’d pay to an advisor like Boomer, sales commissions or taxes (personal or corporate).
“These returns also assume an investor reinvested their pre-tax free cash flow from excess rent at a healthy 10% compounded annually,” explains Boomer, who wasn’t caught off guard by the outcome.
“Now I can’t think of a better 10-year period for U.S. stocks, so I am not surprised by these results. But I also recognize that March 2009 just happened to be the end of the financial crisis and public markets were depressed – perhaps overly so,” he adds.
