Real Estate vs. The Stock Market

Nader Hamid, Portfolio Manager with TWM Group at iA Private Wealth presents our video. You can also see this video in French presented by Jean Hénault by clicking here
Real estate has always been a hot topic in Canada, and it’s common for people to believe this asset class has been a better long-term investment than the equity market. Looking at the long-term data, does Real Estate hold up to its reputation?

Let’s say you bought a house in Montreal in 1997 for $300 000. What do you think would be its value 25 years later, and what would be your return? By the end of 2021, your initial investment would have been worth over $1.5 million.

You’d be surprised to learn that the same investment in the Vancouver Real Estate Market would be worth slightly less, at $1.4 million, while experiencing a bit higher volatility.

Toronto’s Real Estate market was especially hot in 2021, surpassing Vancouver’s soaring prices. By the end of 2021, your initial investment would have been worth over $1.7M.

What do you think would have been the value of the same $300 000 invested in the Canadian stock market during the same 25 years?

Well, in 2021, the total value would have been $1.9M, representing an average annual return of 7.9%.

The data holds up even when we include 2022. All asset classes corrected, including Real Estate.

Of course, your equity investment is subject to taxes and management fees. While for your real estate investment, municipal taxes, maintenance and renovations are spread out throughout the years. But the costs of both investments counterbalance for the most part and make these numbers comparable.

The Key Takeaway?

Over the past 25 years, both real estate and the stock market have proven excellent investments. And as you saw on the chart, neither is without short-term volatility.

One of the main differences is that we see the stock market’s volatility daily, while real estate prices are only valued when there’s a transaction, giving the impression of lower volatility.

On behalf of the TWM Group, thank you for watching. See you next time.

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