The semi-detached home he bought in Toronto’s Riverdale neighbourhood for $1,200 in 1906, sold in November for $825,000.
Conventional wisdom has it that buying a home is one of the smartest things we can do. If you have been lucky enough to live in the Greater Toronto Area, especially in the last 10 years when house prices have doubled, that would be true.
But over the long run, is home ownership such a great deal? To find out Moneyville took a close look at Gunn’s house over the last 105 years.
Here’s what we found: Adjusted for inflation, an investment in the stock market would have yielded a better return, including all the ups and downs — starting with the 1929 stock market crash that ushered in the Great Depression.
Toronto was still rebuilding from the Great Fire of 1904 when Alexander Gunn was promoted to district captain after years of climbing the ladder at the city’s No. 3 firehall at Yonge and Carlton Sts. With his new responsibilities came a pay hike, from $850 to $1,000 a year.
It was the nod he needed to buy his first home.
The three-storey house in what is now known as Riverdale was brand new, part of a development on what had been fields where locals grew food to sell at market. It promised good luck: A shamrock had been crafted into its soaring gable, most likely by Irish immigrants who helped build these turn-of-the-century subdivisions.
Each day on his way to work, Gunn would have headed down Broadview Ave. with its sweeping view of the downtown and watched the burned-out city being rebuilt.
He would have kept warm at night in front of the house’s wood-trimmed fireplace and watched through its lead-glass windows as thousands more homeowners flocked to the area after 1912 when Danforth Ave. was paved and, later, the Bloor Viaduct erected across the Don Valley.
Gunn paid just a little more than a year’s salary for the modest house on a 20 foot by 112.5 foot lot. Today, a buyer would pay a fortune, relatively speaking — about five times their annual income given that the average price of a GTA home in October was $465,000 and the average household income $82,000, according to the Canada Mortgage and Housing Corp.
Gunn and his family lived at 56 Simpson Ave. for more than four decades, through two World Wars, the Great Depression and the remarkable transformation of Toronto.
The house changed hands just four times before its most recent sale. And the average annual gain over the 105 years, adjusted for inflation, was just 3.9 per cent.
“If I had to give new homebuyers some advice, it’s that houses aren’t always the ultimate investment. You should never bet the farm on the house, so to speak,” says Francis Fong, an economist with TD Economics.
Fong and his colleague Sonya Gulati helped Moneyville adjust prices for inflation and compare the appreciation of the home against Toronto Stock Exchange returns.
The challenge was to compare apples to apples. We had the home’s sale price going back to 1906, but the Bank of Canada’s inflation records don’t begin until 1914. Toronto Stock Exchange records start in 1919.
So we opted to track gains from 1947 onward, seven years after Gunn’s death, when the house sold for $6,300. We found that in those 64 years, the house appreciated at an average annual rate of 2.3 per cent, adjusted for inflation. (Inflation averaged 3.9 per cent during the same period, largely because of spikes in the 1970s and early ’80s.)
The TSX, on the other hand, did marginally better — producing average returns of about 3 per cent.
But when the everday costs of a house were included, things likes taxes, maintenance and upkeep, 56 Simpson fared much worse
“A house is not a good investment. It is a roof over your head,” says James McKellar, director of the real estate and infrastructure program at York University’s Schulich School of Business.
These days, homeowners in hot markets like Toronto and Vancouver may feel they have hit the jackpot: Most Toronto homes have virtually doubled in price over the last decade and in Vancouver they have almost tripled.
But once you factor in the other costs — interest on the mortgage, new kitchens, bathrooms, furnaces and electrical updates, “you’re lucky to make anything,” says McKellar. Studies have shown that it’s $800 a month cheaper to rent a 1,000-square-foot home than to own it, he notes.
“By any empirical study, houses do not inflate. They are a cost. But we all have to live somewhere.
“Calling a house a good investment is a process of rationalization. The last thing you want to admit is that, ‘I bought the house because I fell in love with it.’”
Catharine Grossi is proud to admit that. She and her husband Paul bought 56 Simpson for $462,500 back in 2001 because they were keen to move back to the city from the suburbs.
“When I saw that so much of the original house was there, and it was updated . . . That was good for me. I loved it as soon as I saw it.”
She became fascinated by the home’s history — she spent a day at the City of Toronto archives — and details such as its original fireplace, century-old exposed brick, the shamrock.
The house proved to be the perfect place for Grossi’s two sons and daughter to drop their bags after university or stints abroad.
Grossi wasn’t thinking so much about the gains she’s made, but rather the life she’s lived at 56 Simpson when the house sold Nov. 4. She and Paul are downsizing into a home two doors from their daughter and her newborn twins.
Grossi asked just one thing when her realtor called to say there had been an offer at asking price: “Do they love the house?”
James McKellar gets that.
He has lost money in the housing market: About $25,000 in the wake of the oil patch bust in Calgary in 1983 and $35,000 on a Boston home during the ’90s recession.
He now owns a home in Moore Park.
“The big drawback of renting is that it doesn’t give you the emotional satisfaction of owning,” he says with just the slightest chuckle.
“At the end of the day, when you go home and make dinner and relax, the numbers really don’t matter.”
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