Wednesday, May 7, 2014

Is there a housing price bubble?

Last week the Toronto Real Estate Board President announced that during April – the first full month of spring – Greater Toronto REALTORS reported a 1.8 per cent year-over-year increase in sales through the TorontoMLS system. Total April 2014 sales amounted to 9,706, compared to 9,535 transactions in April 2013. The average selling price for April 2014 sales was $577,898 – up by 10.1 per cent compared to the April 2013 average of $524,868.

I am not a realty expert but the record average selling price is likely due to a shortage of listings, a seasonal buying binge and cheap money.

So which is the better long term investment; residential property or the broader stock market? Currently over the past 10-years the math favours stocks as measured by the S&P/TSX 60 index or the investable clone the iShares ETF (XIU). The 10-year annualized return on the Toronto MLS average selling price is 6.4 percent and over the same period the XIU returned 6.1 percent – but housing attracts realty tax and repairs and the XIU attracts dividends - but you have to live somewhere and so maybe best to diversify and have exposure to both markets.

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