“People” have always tried to make comparisons between the returns in the residential (not commercial) real estate market and the financial markets. In other words – for the average American homeowner – not landlords, REITs, or commercial institutional investors. (That’s a story for another Padkos).
Some argue that residential real estate is the most sound investment and shows the most appreciation over a longer period of time. Others argue that it isn’t as liquid as a stock and therefore less appealing and flexible. Both arguments are credible. The bulls in both markets are charging full steam ahead.
As the US stock market continues on its longest bull run in history which began more than nine years ago in March 2009, the real estate market continues to charge upwards. More homes were sold in the US in the last year than in any year since 2006. This is due to the change of lifestyle choices initiated by the pandemic, the great resignation, and different needs in homes as WFH becomes more of a staple of everyday life. The bull market in the real estate market is arguably still in its infancy
The ability to maximize a return in both markets has everything to do with timing. What people perceive to be the real estate markets greatest weakness (lack of liquidity) is the residential real estate market’s greatest strength. On the flip side, the liquidity in the financial markets might be its greatest weakness. It isn’t as quick and easy to sell your house as it is to dump Peleton stock. The timing of a knee-jerk reaction based on emotional sentiment is a lot slower moving in real estate. Most homeowners don’t see a market move early enough or have the ability to respond to the fluctuations in the real estate market as quickly as they do to after watching 30 minutes of Squawk Box. Zillow might aspire to be like Robin Hood but it isn’t logistically feasible.
Anyone with an internet connection can get (almost) real-time data on the DOW Jones, NASDAQ, or FTSE.
In order to accurately understand what is going on in real estate in real estate, you will always need to have boots on the ground and agents openly communicating with each other. It is, however, becoming easier to see changes and trends in the real estate market faster. Thanks to technology, the speed at which information is disseminated has shortened the time frame in which we can track real estate data and make educated decisions.
But – real estate data collection and dissemination will never be able to compete with the speed of the financial markets.
Side Bar:
I’m a big fan of all of Ray Dalio’s books. His latest book “Principles for Dealing With the Changing World Order” is a must-read. An analysis of why nations succeed and fail, it gives us a close look at the different empires over the course of history. His analysis of the cause and effects of both the financial real estate markets (among many other fascinating topics) is critical in his understanding of who we are as a civilization and where we might be heading...
Let’s do this!
-Shaun