Monday, September 7, 2015

So do we buy a house or buy a bank?

The GTA real estate boom continues – according to the Toronto Real Estate Board (TREB) August publication – Market Watch and I quote,

“Sales and Average Price Up in August: TORONTO, September 4, 2015 – Toronto Real Estate Board President Mark McLean announced that Greater Toronto Area REALTORS® reported 7,998
residential transactions through the TREB MLS® System in August 2015. This result represented a 5.7 per cent increase compared to 7,568 sales reported in August 2014. On a GTA-wide basis, sales were up for all major home types.”

And, “Buyers in the GTA remain confident in their ability to purchase and pay for a home over the long term. They see ownership housing as a quality investment that has historically produced positive returns while at the same time providing owners with a place to live in their chosen community,” said Mr. McLean.”

That was quite a bullish argument for home ownership and very timely when you consider the other choice – the stock market which lately has been the target for the doom and gloom crowd   

Our chart displays the 14+yr (5190 days) monthly price of the GTA average housing price over the TSX listed iShares Financial Sector exchange traded fund (XFN) – which is a basket TSX listed financial related stocks to include the banks and insurance companies. Note the buy and hold annualized returns – GTA TREB at +6.2% and the XFN at +5.9%. So far very close but the XFN spins off income and home will attract property tax and maintenance cost.

On the other hand the XFN is more volatile and your prime residence attracts no tax on the sell side. Probably the best strategy is to diversify and own smaller portions of both.

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