In: Real Estate News12 Aug 2011
The Toronto Real Estate Board released their real estate statistics for July 2011. There were 7,922 homes sold in July. This was 23% more than July 2010. This shows that the real estate market in Toronto is continuing to be very healthy. Although, despite the large increase in July, since the beginning of 2011, total home sales have decreased by 1.3%.
The average selling price for a home in Toronto was $459,122. This was up dramatically. This was almost 10% higher than 2010. The average price in July 2010 was $418,675. This is an increase of more than $40,000.
Often people compare the real estate market to the stock market. They say that people are better off in the stock market. Considering that the stock market recently lost all gains in 2011, the real estate market appears to be more stable place to keep your money. This week the stock market has increased and decreased by 5% on a daily basis. Radical stock market variations makes investors nervous. However, home owners are not nervous about their home’s value.
The return on an investment in a house can be very fruitful. When you consider how much the average Canadian is leveraged, it makes the investment appear even better. Lets consider the example of a home buyer who put 5% down on a $400,000 home last year:
The initial investment on a $400,000 home would have been $20,000. Now, one year later, the home is worth $440,000. This home owner has just tripled their money. They turned $20,000 into $60,000 ($20K + 40K increase). This is a 200% return. Compare that to a stock market that just dropped to 2010 levels.
The above example is a very simple example and it does not include all the other costs involved with real estate investment. For example, the closing costs when buying a $400,000 home in Toronto could easily be $15,000. Plus real estate costs when selling, would also be around $25,000. This makes the $40,000 increase reduced to of zero. These extra costs are often to included when people say that they “just bought a home and made $40,000″. Actually, then may have made zero.
However, if home prices continue to increase, then this reduces the affects of the closing costs. If that same home increased in value to $480,000 net year, then the increase in value would be $80,000. Once subtracting the closing costs of $40,000, the home owner made $40,000 over two years. Based on the $20,000 initial investment, this is an annual return of 50%. Not to shabby.
However, the problem with real estate market profits, is that you need to sell your home (and not buy) in order to realize the gains. When you sell your home at a high price, you often end up needing to buy a home at a high price. Unless you are considering renting, you really don’t gain financially from the increase in value in your home’s value. If you buy another home for $480,000, you still have the same amount of money in the bank…
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