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A tale of two investments

Comparing the lucrative appeal of real estate and equities.

As real estate prices continue to set new records across much of the country, it’s reasonable for Canadians to wonder whether buying property may represent a more lucrative investment opportunity than traditional equity-based market options. Understandably, some investors may begin to seriously question why they should stay firmly anchored in stocks while real estate investing appears to offer such rich rewards. The difference is in the details – and they can be surprising.

A market comparison

The debate over which type of investment offers the best opportunity for growth has intensified as a result of the now decades-long upward trend of Canadian property values. Many homeowners feel quite satisfied with their decision to enter the housing market, given that the value of their home has likely risen significantly – even over a very short period. However, equity markets have also logged an impressive growth rate in recent years. In fact, equities have outperformed Canadian home prices overall, although the journey for stocks has been a bumpier one. 

Since 2000, the S&P 500 Total Return Index and the S&P/TSX Composite Total Return Index have shown considerable growth, as has the Teranet-National Bank House Price Index. While the returns in the equity markets are slightly better, as shown in the chart below, they came with some nerve-wracking volatility. On average, the markets have registered 10 to 15 per cent growth during the past five years. Comparatively, the house price index has averaged about 8 per cent, also on a rolling basis, during the past five years.† 

Chart. Teranet-National Bank House Price Index vs. S&P 500 Index and S&P/TSX Composite Total Return Index Three-Year Rolling Returns, from 2002 to 2021.

Teranet-National Bank House Price Index vs. S&P 500 Index and S&P/TSX Composite Total Return Index Three-Year Rolling Returns (2002–2021)†

Source: Capital Markets Strategy, National Bank; Bloomberg, August 31, 2021.

Aside from the volatility factor,

over the long term, equities have performed as well as and,

in many instances, better than Canadian house prices.

It’s tempting to assume that if the average home price increases by 20 per cent in a single year, it can do that every year – but this simply isn’t the case. The real estate market has been known to suffer downturns during recessions, when unemployment rises and in response to other crises, financial or otherwise. Yet real estate declines aren’t even considered normal anymore. One case in point is the pandemic’s boost of housing prices. The health emergency was seen by some people as an opportunity to become homeowners, driven largely by a raft of changes to their work routines that enabled them to pursue a more desirable lifestyle

The two-year pandemic homebuying bonanza has been turbocharged by low interest rates and government financial stimulus programs aimed at keeping the economy chugging along. Real estate transactions and mortgage financing have yet to show any serious signs of slowing. So, while it’s true that extraordinary circumstances can negatively affect home prices, this hasn’t happened in most major Canadian real estate markets for some time and isn’t expected to as long as the inventory supply of residential homes continues to fall short of the insatiable demand. 

What’s the difference? 

Since real estate and equity investing have both seen tremendous gains and offer investors potentially attractive returns, the differences between the two may appear less prominent. But to determine which may be the better investment overall for a given individual or situation, it helps to look at the advantages and disadvantages associated with both.

Real estate investing 


  •  Aside from needing somewhere to live, part of the motivation in buying real estate is owning an entire physical property. People may obtain a greater sense of satisfaction from tangible ownership, whereas stocks enable you to own only a fraction of a company. 
  • Owning property is generally considered a hedge against inflation, since property values usually increase in inflationary times. Also, investing more money in the maintenance of the property will almost assuredly increase its value.
  • Financing real estate with debt is safer than using debt to invest in the markets. A home can be purchased with as little as five per cent of its total value, and a reasonably low mortgage rate (possible in recent times) can cover the remaining value for a long period. However, using debt to finance stock purchases, known as margin trading, is considered a high-risk venture. 
  • Home ownership offers a host of tax advantages when a principal residence is sold. 


  • Owning property demands hands-on attention. General maintenance and upkeep (and more if you own a rental property with tenants) can be time-consuming and expensive, whereas investing in equities can be a relatively passive activity when the responsibility is entrusted to an investment professional. 
  • While today’s value-driven market is geographically widespread, a physical property can lose value for any number of reasons, including environmental threats, such as a flood, or low service accessibility.
  • To diversify a real estate portfolio usually means acquiring a combination of residential, rental, and commercial properties and requires vast amounts of available capital, which typically is beyond the financial capability of the average investor. 
  • The high cost of real estate means any venture could involve saving and/or borrowing substantial amounts of money to cover a down payment, let alone paying the remaining mortgage costs, property taxes and insurance. 
  • Selling a property can be a pricey process when transaction costs like sales commissions, legal fees and taxes are accounted for. Sellers automatically face paying as much as 10 per cent off the top of the selling price to close the sale. Comparatively, the cost of online stock transactions today is low, if not free, and trades can be completed with a few simple clicks.
  • Property sales may not always net a profit. An unexpected crisis or event might affect the value of your property at any time, which means there’s a chance that selling under negative circumstances could result in a loss. 
  • There is speculation that the Canadian housing market is close to maximizing its value and that interest rates are expected to continue rising in 2022. Serious indications that the era of unlimited returns may have run its course may cause some investors to turn their attention away from real estate. 

Equity market investing


  • Money that’s tied up in a physical investment, such as a house, can be more difficult to access than stocks, which can be bought and sold at a moment’s notice, offering liquidity. 
  • The real-time value of your combined market investments is much easier to calculate than the value of a home, where the appraisal involves a long list of criteria, including the location, state of repair, style, size, etc. 
  • One of the time-tested rules of market investing is to “never put all your eggs into one basket.” Unlike real estate, stock portfolios can be adjusted to take advantage of opportunities in growth areas of the market, as well as to assign protections against downside risk. 
  • Buying an assortment of mutual funds, index funds and exchange-traded funds from across a variety of industries and sectors can deliver instant diversity to a portfolio at a fraction of the time and cost of owning one or more properties. 
  • Registered investment accounts, such as Registered Retirement Savings Plans and Tax-Free Savings Accounts, carry the benefit of tax-deferred or tax-free growth.


  • While real estate values tend to increase steadily, stock market prices are subject to more volatility within a wide range of positive and negative returns. Although advisors know that investors should be prepared to take a long-term, buy-and-hold view of market activity, watching daily stock prices rise and fall can be stressful. 
  • Investors need to understand the tax implications of selling stocks in non-registered accounts – namely the capital gains tax, which can become an issue depending on how long the stock has been owned. Dividends that are paid to shareholders throughout the year are also taxable as investment income. Advisors should be prepared to navigate the range of taxes related to investments to help their clients avoid any taxation surprises.
  • While the relative ease of buying and selling stocks can be an advantage, engaging in too many market transactions can also undermine the strategy of buying and holding shares for long-term growth. 

Well positioned for growth

Many experts are confident that a full reopening of the economy is poised to rebound into prosperity once conditions allow. With strengthening employment numbers and more urgency behind new housing development, equity and real estate investments are both well positioned for growth in the months and years ahead. And while these two aren’t the only investment options available, their relatively stronger track records mean they’re likely to remain among the top choices for investors for some time to come. 

† Performance histories are not indicative of future returns. Indices are unmanaged and cannot be purchased directly by investors. The indices cited are widely accepted benchmarks for investment performance within their relevant regions, sectors or asset classes, and represent non-managed investment portfolios. Although these indices are similar to the fund's objectives, there may be material differences including permitted holdings or investment strategies, which may impact returns. Please refer to the Fund Facts of the fund for more information.

Investments disclosure: 

A rise in interest rates typically causes bond prices to fall. The longer the average maturity of the bonds held by a fund, the more sensitive a fund is likely to be to interest-rate changes. The yield earned by a fund will vary with changes in interest rates.

Currency risk is the risk that fluctuations in exchange rates may adversely affect the value of a fund’s investments.

The opinions expressed are those of Manulife Investment Management as of the date of this publication, and are subject to change based on market and other conditions. The information and/or analysis contained in this material have been compiled or arrived at from sources believed to be reliable but Manulife Investment Management does not make any representation as to their accuracy, correctness, usefulness or completeness and does not accept liability for any loss arising from the use hereof or the information and/or analysis contained herein. Manulife Investment Management disclaims any responsibility to update such information. Neither Manulife Investment Management or its affiliates, nor any of their directors, officers or employees shall assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained herein.

All overviews and commentary are intended to be general in nature and for current interest. While helpful, these overviews are no substitute for professional tax, investment or legal advice. Clients should seek professional advice for their particular situation. Neither Manulife, Manulife Investment Management Limited, Manulife Investment Management, nor any of their affiliates or representatives is providing tax, investment or legal advice. Past performance does not guarantee future results. This material was prepared solely for informational purposes, does not constitute an offer or an invitation by or on behalf of Manulife Investment Management to any person to buy or sell any security and is no indication of trading intent in any fund or account managed by Manulife Investment Management. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Unless otherwise specified, all data is sourced from Manulife Investment Management.

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