With the current turmoil in the US and Canadian stock markets, investors appear to be shell shocked by wave after wave of bad news, driving stock markets lower and investors to the exits.
European stock markets are being roiled by the stiff austerity measures being put into place across the EU to stem the fallout from the recent Greek debt crisis, which saw Greece get a EU and IMF bailout package worth up to $110 Billion Euro ($145 Billion USD). This now appears to be the first round in an ongoing dilemma of stemming a sovereign debt crisis across Europe.
Canadian markets have not been immune from this turmoil. Yesterday, the Toronto Stock Exchange (TSX) closed at its lowest level of the year, down 104 points to close at 11,093. This now marks a 9.97% decline from its 12-month high of 12,321.
According to a July 5, 2010 Globe and Mail article:
The losing day continues a downdraft on the market that last week took the index down more than 4 per cent as investors fretted over the possibility that a slowing in China’s torrid pace of growth may dampen the demand for commodities, the health of the European banking system, and the flagging pace of employment growth in the U.S.
Canadian stocks normally take most of the cue for their direction from developments in the U.S., where most markets were closed for the Independence Day holiday. Analysts say investors consequently shouldn’t read too much meaning into the action in Toronto, given the absence of many U.S. players.
The US stock market is often seen as the “Driver of the Global Economy,” while the US consumer was seen as its “Engine of Growth.” The US stock market and the Dow Jones Industrial Average (commonly referred to as the DOW) has always been seen as the bellwether indicator and measure of economic prosperity. It is the market that most people think of when you hear the word “Stocks.”
Although the US stock market was closed yesterday in consideration of the July 4 holiday falling on a Sunday, the Dow Jones Industrial Average continues to be under heavy downward pressure and at its last close on July 1, 2010 at 9,732, it is currently sitting at approximately 31% below it 2007 peak and all time high of 14,164.
In the past, we have all heard the mantra of “Buy and Hold” when it came to the stock market. Well, it is interesting to note that as an investment vehicle this strategy would have given you a net loss of –(5.1)% on a 5-year basis with the US Dow Jones Industrial Average between it’s close of 10,274 on June 30, 2005 and it’s 9,774 close on June 30, 2010.
So how does that compare to the real estate market performance of Vancouver, British Columbia, Canada as an investment?
Well, yesterday the Real Estate Board of Greater Vancouver (REBGV) released its statistical figures to the end of June 2010 giving us a clear view of how Vancouver real estate compares to the DOW as an investment over the past 5 years.
With an average +77.7% price increase for residential detached properties, Vancouver West leads the Greater Vancouver area on a percentage basis over a 5-year term. Even on a 1-year term, a real estate investment in this category over the past year would have achieved an average 20.3% increase in Vancouver West.
| Comparison Table of Percentage Change – June 30, 2005 to June 30, 2010: | |
| US Stock Market (DOW) – 5 Years | -(5.1)% |
| Vancouver West Average – 5 Years | +77.7% |
It seems that the “Buy and Hold” strategy that has worked so well in the Vancouver Real Estate Market will continue to have a bright future. With an average immigration of 50,000 people a year, British Columbia’s population is expected to swell from 4.5 million people in 2009 to between 5.8 to 7.1 million by 2036.
From an investment point of view there really is no doubt that Vancouver real estate has easily surpassed the performance of the US Stock Market DOW index over the past 5 years.
