Homes worth a castle to those owning since 1981

Vancouverites who bought homes in 1981, weathered the market cycles, and managed to pay their mortgages down, have made what looks like a decent return by 2006, realty firm Re/Max reported Wednesday.

The average price of a Greater Vancouver home increased 242 per cent over the past 25 years to hit $509,876 in 2006, compared with $148,861 in 1981, the Re/Max study on residential real estate values showed.

That's five per cent per year, compounded.

In other markets, prices rose more, compounding between five and six per cent, with total price appreciation exceeding 240 per cent in more than half of the 17 housing markets that the company looked at.

Annualized returns of five or six per cent represent "good, strong performance that we should be expecting," according to Elton Ash, Re/Max's western executive vice-president, said in an interview. "And you have to look at real estate as a long-term investment."

Nationally, the average house price increased 264 per cent to $276,824 between 1981 and 2006. And while Vancouver was the most expensive market, Barrie, Ont., saw the biggest increase in housing prices with the average $244,000 representing a 372-per-cent gain.

However, inflation topped 128 per cent over the same period, Tsur Somerville, director of the centre for urban economics and real estate at the Sauder School of Business at the University of B.C., said in an interview.

"When you scratch out inflation, the increase isn't as great," Somerville said.

He added that, even without accounting for inflation, the increases pale in comparison with the TSX/S&P Composite Index, which gained 457 per cent over the same period.

Somerville added that a comparison of average sale prices also doesn't account for the changing characteristics of average houses, which by 2006, were bigger and fancier, boasting granite countertops and stainless steel appliances that weren't built into houses in 1981.

"I think because [Re/Max] is looking at average sale prices instead of controlling for the character and location of houses, they're grossly overstating the increase," Somerville said.

Ash said Re/Max did the analysis to look at the last 25 years and see if the period gives any indication of what might happen to real estate over the next 25 years.

And Michael Polzler, Re/Max executive vice-president for Ontario, noted "you can't raise your family in a mutual fund. Because of that, there's always going to be that demand for housing, and traditionally real estate has always appreciated."

(prepared by Derrick Penner/Vancouver Sun)