ORES Real Estate Index for March 2012

By
Commercial Real Estate Agent with RE/MAX West Realty Inc., Brokerage (Toronto)

ORES

 

ORES Real Estate Index for March 2012

 Ontario Real Estate Source

By Brian Madigan LL.B.

Here is the "ORES REAL ESTATE INDEX" which tracks the average resale prices of single family homes and condominiums in the Greater Toronto Area (GTA). It also tracks certain benchmark comparisons such as the price of oil and gold, as well as the Consumer Price Index

In addition, the stock market indices for Toronto, and the three largest US markets are also compared.

For ease of comparison, everything we look at is worth 100 points on the Index as of 
1 January 2005
. That time period compares favourably with the five year average used as a standard benchmark comparison in the mutual fund industry. 

As of 31 March 2012, here is the Index representing average prices with the February 29th, January 31st , December 31st, and November 30th, numbers appearing in brackets for comparison:

Real Estate

156.01…..(155.51)…..(143.45).....(139.70)…..(148.67)…..GTA single family 

Other market comparisons 

386.66…..(431.79)…..(407.76).....(357.92)…..(408.18)…..gold (per ounce)
234.37…..(242.47)…..(223.98).....(224.82)…..(228.30)…..oil (per barrel)
134.64…..(137.37)…..(135.29).....(129.89)…..(132.60)…..
TSX index
156.01…..(155.51)……(143.45).....(139.70)…..(148.67)…..ORES sgl fam
115.10…..(114.62)…..(114.15).....(114.81)…..(114.72)……CPI index
149.90…..(143.86)…..(136.43).....(126.32)…..(127.05)…..NASDAQ index
125.95…..(123.47)…..(120.43).....(116.49)…..(114.83)…..Dow Jones index
119.23…..(115.61)…..(111.10).....(106.46)…..(105.56)…...S&P Index

Using the Index

Just a quick note on reading the information. Have a look at the ORES Index for Real Estate (single family homes). As of the end of March, the index stood at 156.01. That's a 56.01% increase in 87 months. That means the increase is 0.643% monthly, or it could also be expressed as 7.73% annually.

Performance can always be difficult to interpret but the longer the period, the more accurate the number becomes. There can, of course, be many short term swings.

The other statistics are reported in a similar fashion for the ease of comparison.

Observations (on the Index)

As we use index, there are several notable comments:

· Commodity prices are just commodity prices

· There is no other "extra return" for commodities

· The same is true for the CPI

· The CPI is a benchmark to see whether you are keeping pace with inflation, that number is 115.10; increases have been modest and inflation appears to be under control; this is significant.

· For a realistic performance goal, you should aim for CPI plus 3.5% annually

· Stocks provide dividends in cash or extra stock. This return is additional to that shown in the stock market indices

· The stock market Indexes only measure the survivors. So, in 2009, both GM and Chrysler would have been dropped due to the bankruptcies

· If you held GM and Chrysler, you lost everything, but two new companies moved in to replace them in the Indexes

· Real estate offers a return in terms of occupancy. You can rent out the property and receive income, or occupy the property and enjoy it yourself

Comparative Observations Using the New Index

· Gold overall is still the best performer, reaching 388.66, nothing else comes close, however, it is well off its highs (425.72 in September 2011)

· Oil was the most volatile, (it dropped in half over our measurement period), but we are seeing downward trend this past month which is quite inconsistent with what we see at the pumps

· Real estate was the most stable, with solid predictable returns at about 7.73% annually

· Our own stock market posted reasonable gains, but still falls behind single family homes over the measurement period, however, don't forget that the TSX is still well off its highs and is substantially resource based

· All three US stock market indicators now show positive numbers, and may truly be a better overall indication of the true state of the North American economy. The S&P matches inflation, the Dow is now measurably under the Nasdaq which now exceeds our own TSX. This is positive for the US economic recovery.

Conclusion

For steady, predictable, measured gains pick real estate. It's a solid performer with lower risk (less volatility) and generally moving in a positive direction.

And remember, when it comes to real estate, it's never "wiped out" completely, like GM or Chrysler stock. So, unless you're sitting on the edge of a tsunami, you'll still own something when the storm is over.

For a benchmark of success, there's 1,000 years of history to point to a rate of return in real estate being about the equivalent of 5% per annum, simple interest (non-compounded). That means that real estate doubles in value every 20 years. There are a lot of companies (now bankrupt, including CanWest Global, and many US Banks) that would have been happy with that return.

The present rate of return although high by historical standards appears to be sustainable in sought after locations like the GTA. At the moment, over our measurement period we are looking at a 2.73% annual premium over the benchmark 5%.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through RE/MAX West Realty Inc., Brokerage 416-745-2300 

www.OntarioRealEstateSource.com

 

 

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Topic:
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Ontario Real Estate and Information
Tags:
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Ambassador
405,376
Jo-Anne Smith, Sales Representative
Oakville, Burlington and Mississauga Region Real E
Your Choice Realty Corp, Brokerage

Brian,

I really enjoyed looking at these statistics. Nice to see real estate still rising here in the GTA. Thanks for keeping us posted on what's happening.

Jo

April 17, 2012 05:57 PM
Rainmaker
555,048
Chris Smith
South Simcoe, Caledon, King, Orangeville Real Esta
Re/Max Chay Realty Inc., Brokerage

Brian, great job.  Personally I prefer Real Estate to Oil or Gold, it offers the most stability over time, as you noted.

April 18, 2012 05:37 AM
Rainmaker
239,405
David Pylyp
RE/MAX Realty Specialists Inc.,

We need to keep reminding people they cannot live inside their mutual funds,  Gold could be stored in their condos.

Those modest price increases [year over year] are while you are living in your property.  Hard to stock pile half a million in diamonds.

Great Analysis Brian

Thank You 

David Pylyp

Living in Toronto

 

April 25, 2012 05:39 PM
Rainmaker
894,244
Brian Madigan
LL.B., Broker
RE/MAX West Realty Inc., Brokerage (Toronto)

I have to consider whether I'm going to keep this up. TREB stole my Index. At least now, they can do the calculations.

 

April 25, 2012 05:55 PM
Rainmaker
239,405
David Pylyp
RE/MAX Realty Specialists Inc.,

Just proves that even treb is seeking their relevence 

April 26, 2012 06:02 PM
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Rainmaker
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Brian Madigan

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