This is a meaty topic, but one that deserves close attention. Economic fundamental can be boring, until you learn how they will effect you and your family.  The following economic fundamentals help answer the question posed last weekWhere should I invest in Real Estate?

Consider in selecting a country, that Canada is poised for sustainable growth, is a pillar of financial stability among uncertainty, and has what the world needs, namely; food, fuel, fertilizer, forestry and precious metals. There are abundant opportunities in our own backyard, and as residents we have a distinct advantage over outside investors.

crea

 

Canadian house prices have increased for 30 years.  Also of note, the RBC Housing Affordability Measure, released quarterly since 1986, depicts that even with the huge increases in house prices in Canada, ownership costs as a % of household income remain relatively flat. Because income increased with the cost of home ownership, it is no more expensive to buy and own Real Estate now than it was 26 years ago.

Furthermore, although average price has dramatically increased in Canada, dwelling price/income ratio in Canada still compares to other countries, sitting at around 4.5x income.

These indicators show that Canadian prices have increased for many years, that Real Estate affordability is the same or better than Canadian historical levels, and that Canadian prices are on par with most of the world. This evidence indicates room for future growth.

Canadian Historical Real Estate Appreciation:  The long term trend for Canadian Real Estate is to increase in value, and for reasons previously discussed, there is reason to believe this will continue.  Although historical returns is no guarantee of future performance, it does lend perspective when trying to determine how much things might grow.

Below is the Teranet – National Bank House Price Index which charts real estate values in 11 major Canadian cities from 1999-current.  As you can see from the Oct 2012 period, there has been a 3.43% increase in national real estate values since this time last year, a -0.25% decrease in values since last month, and an overall increase of 3.84% this year to date.

Teranet – National Bank National Composite House Price Index ™

Index Period – Oct 2012 : Composite 11

Index Level : 154.59 ©

%change y/y : 3.43%

% change m/m  : -0.25%

Year to date : 3.84%

Historical Index Values – National Composite

   160

   140

   120

   100

    80

    60

 

 

Since 1999, national house values have climbed about 90 percent.  90% 13 years = about 6.9% avg. growth per year. (click“Methodology” tab this website for explanation).

 

It would be very nice to keep getting 6.9% growth per year, as that is an excellent return from most investments!  But, with properly leveraged Real Estate(Fat Bear Strategy #3), even a much more conservative growth rate of 3% = 15% returns!   Read on for an example on how this works:

Assume $100,000 property with 80% loan to value(L.T.V.) mortgage = $20,000 invested.

Appreciation (annual)

Property $ Value

Appreciation Profits

Return on Investment

1%

101,000

101k – 100k = $1,000

1k/20k =5%

2%

102,000

102k – 100k = $2,000

2k/20k =10%

3%

103,000

103k – 100k = $3,000

3k/20k =15%

7%

107,000

107k – 100k = $7,000

7k/20k =35%

If you had purchased an average Canadian property in 1999, with a mortgage for 80%, you would have realized an average of 35% growth of your money per year in appreciation alone!

 

But if it was “only a 3%” average increase in prices, you still would have realized 15% per year!    Not too shabby.

 

In Canadian Real Estate, 3% = 15% !  This is a leveraged savings account, and no wonder this real estate thing is a “Fat Bear” Wealth creation strategy!

 

Since you now see why the OECD named Canada as the leader of the G7 for growth for the next 50 years, you will agree that Canada is a natural choice for a place to invest.

 

Unfortunately, there is no such thing as an “average Canadian property.” If you are going to buy Real Estate, you must choose a specific property, in a specific neighborhood, in a specific town, in a specific province, in a specific region, within a specific country.

Although the average Canadian trend was great, there were properties and towns that were winners that brought the average up, and losers that brought it down. Read on for what’s next to see why the BC region will be a winner, and how it will overperform Canada’s already superior expectations.

Or you can download the entire PDF report here.

 

Until next time,
Stay S.A.F.E.