New Data Highlights Continued Resilience of Real Estate Investments

July 04, 2014

The Canadian real estate landscape is evolving. But in spite of changing trends, investors in the country’s real estate industry are still on track for consistently strong returns both in the near and distant future. While real estate in major cities slips in value after record increases, the growth being experienced across the market in local regions such as Hamilton and Calgary could be a positive indicator for those who look at the industry from a long-term investment standpoint.

As the rebounding US housing market shows, investments that were once, even as little as a year ago, deemed dead in the rubble by experts can come storming back to record excellent growth in a short time period. The US experienced the worst housing crisis since the 1920s in the crash of 2008, but Americans are once again optimistic about the strength of their housing sector and this sentiment is similar across many of the major global housing markets.

With the simple ingredient of time, the US housing market picture is beginning to look brighter. And rumours of the appearance of light towards the tunnel’s end are gathering pace. Some of the world’s most prominent investors are now placing their wealth into the housing market as optimism surrounds the entire worldwide industry. This is an essential vote of confidence in the sector for many new investors entering the real estate market for the first time. New Canadian investors currently experiencing underperforming results in the short-term can learn from the results being experienced by their US counterparts.

When examining the US housing data, Canadians can rest assured that the minor price correction taking place in Vancouver and Toronto is destined to be a short term pitfall on the road to long-term growth. Investors are turning back to real estate in America while US-wide economic data is still mixed. But this data correlates with the way the housing market rose quickly, bringing the country with it, from the recession in the country in the 1980s.

The latest housing data could provide a meaningful — and critical — lift to overall economic activity when other growth drivers, like exports, are slowing,”

Joseph LaVorgna – Economist at Deutsche Bank

The reason investors often turn to housing in such circumstances is it is a sound strategic investment for the long-term that is backed by a tangible asset. Housing provides stability and assured long-term growth and this is one of the fundamental truths that all leading investors understand completely.

A Tangible Asset That Offers Investor Control

As a tangible asset, real estate provides numerous advantages over traditional stock market investments. For example, investors experiencing limited interest in their property may opt for an upgrade such as a remodel to replace a kitchen or home fittings. This level of control ensures that investors can guide the performance of their real estate investment and capitalize on new opportunities and trends within the market when they arise.

Investors Can Use Leverage to Build Personal Net Worth

Another reason why many investors are turning to real estate within these turbulent economic times across North America is that it’s one of the few types of investment that can be bought by utilizing borrowed money from a lending institution.

If an investor used $100,000 to buy $100,000 of stock and that stock had appreciated at a rate of 5%, the asset would now be worth $105,000. Consider an investor putting a 20% down payment on a $500,000 home. Assuming the property appreciates in value a mere 5% over one year, the investor now has an asset worth $525,000 to their name. Over time, investors can use leverage to increase their net worth significantly.

Strong History of Growth

The principle question that all investors ask when entering the market is “What is the ROI on this investment product? And this is another area in which, historically, real estate continues to dominate over traditional stock market investments. The data from the Canadian residential real estate market shows that real estate has risen more than 250% in the last 20 years. This is a level of growth that is far superior to the growth in consumer prices and disposable income during the same time period.

As opposed to stock market investing, the benefits of real estate are clear and the long-term data truly does speak for itself. While the Canadian market on a national scale is set for a period of moderate growth in 2013, those that take a pragmatic approach to the market will see great returns in the coming years. With some of the world’s most trusted investors now making real estate a major element of their portfolios, new investors would be wise to follow suit.