A new study by TD Canada Trust says many Canadians do not
realize they’re living in their single biggest investment,
with land and buildings representing an average of a third
of household wealth in Canada. Another 23 per cent of household
wealth is in insurance policies, and 18 per cent is invested
in stocks and bonds.
The bank’s report says real estate has also been one
of the better performing financial assets in a household
portfolio, helping offset losses on the stock markets. “For
many Canadians who have modest financial market investments,
their home is the single biggest asset on their balance
sheet” the TD report notes. "The increase in
home prices has virtually offset the negative wealth effects
from declining equity values — although the net impact
on individual balance sheets depends on the household's
exposure to the equity market".
While the property asset will continue to grow in value,
the report also says, it may not grow at the rate in the
recent years. "The fundamentals driving housing markets
will remain positive," says Craig Alexander, a senior
economist at TD Bank and author of the report called “Profiting
from Home Ownership”.
The report predicts that for 2004, growth in home prices
will slow down to a 3.5-per-cent advance from this year's
7-per-cent projected growth. “Sales will be supported
by rising personal income, high levels of affordability
and the relative attractiveness of owning rather than renting.”
Despite the projected smaller increase in prices, the report
highlights another benefit as the lack of capital gains
taxes on rising property values. That makes the 3.2-per-cent
figure equivalent to a pre-tax return of 5.8 per cent in
relation to other capital investments, Alexander said.
The TD Economist also believes that investors have been
paying too little attention to real estate prices, especially
considering that a higher percentage of Canadians own homes
than own equities. On average, 35 per cent of Canadian household
assets comprise real estate, while bonds and equities make
up only 18 per cent.
Geographically, the TD report says Montreal is poised to
register the largest property gains in 2003, with the bank
report projecting a 19.4 per cent rise in resale home prices.
Toronto is seen posting a 5.6 per cent gain, and Vancouver
4.3 per cent.
According to a forecast by the bank, over the next 10 years
Canadian equities will likely deliver an average return
of 7.75 per cent, while a basket of bonds will yield 5.75
per cent, and money market funds 4.6 per cent.
In contrast, Canadian home prices are expected to rise at
an average annual rate of 3.2 per cent. "Over the long
haul, the risks associated with investing in financial instruments
such as bonds and equities demand a risk premium that ensures
a long run return greater than that of real estate,"
said Craig Alexander, TD Bank senior economist, in his report
Since 2000, real estate has been trouncing the equities
market. Last year, for example, house prices increased about
7 per cent nationally, versus a 12.4 per cent fall in the
S&P/ TSX composite stock index.
new study by the BMO Financial Group says the average monthly
carrying cost of new home ownership is now 30.5 per cent
of household income, well below the 60 to 70 per cent level
of the early 1990s. This is seen as a strong indicator that
the real estate market will continue to be robust for the
rest of the year in spite of recent higher interest rates
and higher housing prices.
The report from the BMO Financial Group Economics Department
notes that the national average sale price for housing during
the first quarter of 2003 rose 8.5 per cent from a year
ago to $198,418. Over the same period, the monthly cost
of a variable rate mortgage rose 17.8 per cent to $1,001
(based on a 10 per cent down-payment and a 25- year amortization
“Despite these increases, the carrying cost of homes
continues to be affordable for most Canadians” says
Michael Gregory, Assistant Chief Economist, BMO Financial
Group. "Housing affordability has been and will remain
favourable across the Canadian market in the near term."
"Payments are only one side of the affordability coin:
the other is income," says Gregory. "In the first
quarter, average income advanced at a 2.5 per cent year-over-year
rate and job growth was 3.4 per cent. In other words, Canadians
are working and earning more, and this provides a partial
offset to higher mortgage payments."
report also notes that monthly housing mortgage payments
have historically averaged 43.6 per cent of household income,
and when the national average reaches that point, demand
would probably begin to soften noticeably.
the current high level of affordability, with monthly payments
still at the historically modest level of 30.5 per cent
of total household income, the housing market should be
able to weather still higher prices and interest rates,
rather than dropping under the weight of mounting mortgage
payments," says Gregory. "The economic indicators
all point to Canada's housing boom landing softly, rather
than with a thud, which is good news for existing homeowners
and those just about to buy."
The BMO study shows highest monthly carrying were in Vancouver,
at $1,587, and in Toronto-Oshawa, at $1,462. The lowest
carrying cost locations in the country were Saint John,
at $489, and Regina, at $506. Saint John also saw the lowest
change in year-over-year carrying costs with an increase
of only two per cent, while Montreal and Quebec City saw
the highest spikes at more than 26per cent.
Note: Article provided by CREA. The comments contained on this site are for information purposes only and do not constitute legal advice.
The Canadian Real Estate Association website: www.crea.ca