Despite the expensive figures, with the S&P 500 trading at about 22 times forward earnings, another concern about the stock market is quietly simmering: US homes are now worth more in stocks than real estate.
At first glance, this may not sound scary. After all, the stock market has been rising steadily since 2020, except for 2022. Stocks have dramatically outperformed real estate over the past few years, especially after the Federal Reserve began aggressively raising interest rates. However, I argue that housing affordability has improved because of the bull market in stocks. Just look at your own stock portfolio.
If an asset class performs better over time, people allocate more money to it, whether they know it or not. Retirement accounts are growing. Brokerage accounts are increasing. Equity compensation vests. Real estate, by contrast, is less expensive, requires more capital, and is less attractive during high tax periods.
That said, I now find real estate attractive compared to stocks, which is why I have a lower dollar cost of private real estate opportunities. When sentiment is poor and capital is scarce, expected future returns tend to be high. It is rarely the case that everyone is happy.
Concentration Risk Ring
If households hold more of their net worth in stocks than real estate, we should pause. Concentration risk is significant. The higher the level of concentration in one asset class, the more volatile the sentiment is when prices begin to decline. Looks like 1999 is coming back.
With so much money tied up in the stock, any reasonable correction has the potential to feel violent. The loss hits close to home. People check their balances often. Fear selling becomes more likely, not because fundamentals suddenly fall, but because fear spreads faster when there is a greater risk.
Cash flow is an issue. If there is more money in the stock, there is more money that can be sold. These variables tend to increase market volatility on the downside, especially when leverage, debt, and passive investment vehicles are involved.
Compared to selling real estate, selling stocks is cheaper and almost faster.
Horrible Stock Signal
If you look at historical data, the last two periods when households owned more stocks than real estate were followed by long periods of disappointment for equity investors.
In the 1970s, stocks stagnated in real terms as inflation eroded purchasing power. In the late 1990s and early 2000s, homes became increasingly popular following the tech bubble. What followed was the “lost decade” of stocks from 2000 to about 2012, when the S&P 500 delivered zero real returns.
History doesn’t repeat itself well, but it rhymes often enough to deserve respect.
Rushing to Work is Human Nature
It is human nature to chase what works. No one wants to miss out, especially after watching others get rich the hard way. Stocks are liquid, easy, and rewarding during bull markets. Real estate feels slow, annoying, and burdened with tenants, maintenance, and taxes.
But that’s exactly when discipline is most important – when investing in FOMO is at its highest. Make sure you are properly diversified based on your risk appetite.
If the asset class dominates the net worth of the family, future returns tend to be lower, not higher. Hopes are rising. Margins of safety are shrinking. At the same time, diversification is quietly eroding as portfolios gravitate toward what has already been a high.
This does not mean stocks are going to crash tomorrow. But no one should be surprised if they do.
I lower my expectations and resist the urge to aggressively chase these levels. And I’m deliberately allocating new capital to areas that feel more crowded, including private real estate, debt, and other select options.
Why Architecture Still Matters
Real estate is always the core business of families for a reason. It provides shelter, income, inflation protection, and mental stability. Even when prices are falling, people are still living in their homes. Rents are still being paid. Debts are still being reduced.
Stocks, in contrast, do not provide direct assistance. They are pure financial assets whose value depends on expectations, liquidity, and sentiment. If sentiment turns, prices can fall much faster than the fundamentals justify.
This is why balance is important. When a lot of wealth is tied up in assets with a quick return, making emotional decisions becomes very dangerous.
Frequency of Historical Corrections in Stocks
Given current ratings and home exposure, I wouldn’t be surprised to see another correction of 10 percent or more in the next 12 months. All it takes is one catalyst. Fear of growing up. Policy error. Country shock. Liquidity event.
Repairs are not uncommon. They are the price of long-term returns. But when the concentration is high, the correction is worse than expected. To put the decline in perspective, here’s how often it happens:
- 5% pullbacks: 2-3 times a year
- 10% adjustment: ~every 1-2 years
- 20% bear markets: ~every 5-7 years
- Economic downturn: every 7-10 years
The solution is not fear. The solution is preparation.
Measure when needed. Deliberately separate. Build assets that provide cash flow and resources, not just paper benefits. And remember that when everyone feels comfortable, the risk is often higher than it seems.
Stocks may continue higher in the short term. But when families already have more wealth in stocks than in real estate, it pays to be a little more cautious than the crowd.
Readers, what are your thoughts on Americans now holding more wealth in stocks than in real estate? Do you see this as a stock warning sign, a real estate buying opportunity, or both? And roughly what percentage of total value is given to stocks versus real estate today?
Diversify Your Wealth Beyond Public Assets
If families already have more money in stocks than in real estate, it’s worth asking a simple question: What happens when social equality finally means restoration? Concentration risk tends to feel invisible during long bull markets, until it doesn’t.
For those who don’t want the headaches of owning and managing physical assets, I got it Fundrise be a compelling alternative. The platform allows investors to invest passively in a diverse portfolio of residential and industrial properties, with a focus on Sunbelt markets where prices are generally low and long-term demographic trends remain favorable.
With more than $3 billion in private assets under management, Fundrise offers exposure to real estate that behaves differently than public REITs and stock-heavy portfolios—something I appreciate as households increasingly lean toward cash.
I personally invested over $400,000 through Fundrise. They’ve been a long-time partner of Financial Samurai, and with a small investment of $10, it’s one of the easiest ways to start diversifying beyond traditional stocks and bonds.
If you want ongoing information about asset allocation, valuation risk, and low-stress construction wealth, join over 60,000 readers and subscribe to my free newspaper. Since 2009, I’ve shared my knowledge to help students grow wealth, achieve financial independence, and sleep better at night, no matter where we are in the market cycle.
