Tuesday, November 2, 2021

Saving for a Home is Possible

It’s no secret that Canadian house prices have been rising rapidly in recent years.  Many young people feel that they’ll never be able to afford to buy a home.  However, as fast as house prices have been rising, the stock market has risen faster.

The following chart shows a decade of my cumulative investment returns compared to the rise in Canadian real estate prices.  There was nothing special about my returns over this period; the stock market was booming.  My investments were primarily in stock index ETFs, although my returns were reduced somewhat by the 20% or so I’ve had in fixed income since I retired in mid 2017. To measure real estate prices, I used Teranet-National Bank House Price Indexes for Toronto, Vancouver, and a composite index of all Canadian metropolitan areas.

The chart shows that even high-flying Toronto real estate didn’t keep up with my investments.   Vancouver real estate growth is a little further behind, and Canada as a whole is even further behind.

What is the lesson here?

Young people who began saving a down payment a decade ago could have seen their savings grow faster than house prices did.  Instead of wasting time worrying about real estate prices continuing to rise, it’s best to get down to the business of saving for a down payment.

Of course, there’s nothing wrong with renting a home.  By building savings, you are prepared to buy a home if the right conditions arise.  And if you choose to continue renting indefinitely, your savings will pay for rent in your retirement.  This is just one of many situations where taking action beats complaining.


  1. Very interesting. I get the feeling however that many young people saving for a home are following the conventional advice of putting their down payment in something "safe", particularly when they hope to purchase a home within a few years and have a correspondingly short investment horizon. If that were the case, they would not be able to keep up. If someone is flexible as to when they may purchase a home, investing is clearly the way to go, as you've demonstrated.

    1. Anonymous,

      If buying a home within a couple of years is a realistic goal for someone, then you're right that my observations don't apply because savings should be kept safe. However, aspirational buyers with no specific buying date who want to improve the odds of being able to afford a home in the future can certainly invest with a longer horizon.

  2. Investment in house is leveraged 1:5 and gain is tax-free, while investment in stocks is 1:1 and gain is taxable outside of TFSA.

    1. Hi AnatoliN,

      House prices have risen strongly for so long that we're conditioned to believe that they'll always go up. But that's not true. High leverage can work against you.

      However, the point of my article wasn't to say stocks are better than investing in real estate (although that has proven to be true over the long run), it's that young people who want to own a home shouldn't despair that house prices keep running away from them. They can save and invest, and have a good chance that their savings will keep pace (or better) with house prices; their prospective down payment doesn't have to lose pace.

  3. Hi Network Admin,

    My annualized return over that period was a little higher than 9.1%, and few people are more careful than I am. I'm not sure what point you're trying to make.

  4. Hi Network Admin,

    I understand now. However, I think my point still applies. If a young couple had despaired that they could ever catch runaway house prices, starting to save and invest in 2010 would have allowed them to grow their savings at least come close to keeping up with house prices (even if they had invested a little more conservatively than I did). Going to cash only makes sense when you've decided to pull the trigger on a house purchase soon. As long as the saving of a down payment is aspirational, having it invested for the long term makes sense.