There is an endless debate about whether real estate or stocks is the better asset class. I recently realized that the wealth effect of feeling good adds another reason to depend on real estate, which I will explain here.
In my post about avoiding the busy real estate market if you want to get the best deal, I highlighted a home that sold for 60% of asking, jumping from $2.5 million to $4.05 million. It was an amazing intimacy that really surprised me. I drive by that house all the time and think nothing of it.
After checking in with my real estate agent, he explained that the original inventory is very tight, so demand far exceeds supply. The home was renovated and well built, so it deserved a solid finish. Still, it’s not a house I ever thought would break the $3 million barrier this year, let alone cross the $4 million mark.
The next time I passed my house on my way to my auto mechanic, something funny happened. I no longer feel bad about paying extra to fix my leaking air conditioner. I had already spent about $900 on a water pump replacement a few years ago due to a coolant leak. So usually, I would get angry.
After paying the auto mechanic $415 for an oil service and coolant leak repair (replaced hose), I treated myself to a $10 milkshake, something I never do when I get a burger. It’s really bad for my weight maintenance plan. Humbly? I felt rich so I figured why not spend the extra money for dessert.
That great excess creates a real, instant wealth effect of feeling good.
Why the Wealth Impact from Real Estate Feels Stronger Than Stocks
Since the beginning of 2023, we have had an amazing stock market. The S&P 500 has risen nearly 80% over the past three years, creating a positive wealth effect that has translated into higher spending. I have even argued that housing affordability is better than it looks because of the benefits of the equity market.
Stock returns that exceed historical trends have bought us more time, our most valuable asset.
And yet, I have come to believe that the positive wealth impact from large home sales is stronger, deeper, and longer lasting than a major stock market rally.
Here are three reasons why.
1) The Benefits of Architecture Are Heavily Heard Forever There are advantages of Stock Market
Real estate moves like a giant armored tank. Even in bad water, it is shallow. It keeps moving towards its destination. Stocks, on the contrary, behave like jet skis: they are fun, fast, and exciting, but an unexpected swell can throw you off and allow a great white shark to bite.
Stocks have no intrinsic resource. “They’re a ridiculous amount of money.” A stock’s value can drop overnight after a single earnings call. Or an unplanned random shock that causes demand to fall off a cliff could cause years of turmoil.
Real estate offers a valuable service. We all need a place to live. In fact, when the world feels like it’s falling apart, the demand for housing really can increase. Even in a zombie apocalypse, you still want a defensible home base. Your stocks won’t jack to prevent you from getting bitten.
Real estate can also generate income without damaging the property itself. Rent does not depreciate the value of the underlying property. Dividends, on the other hand, are paid directly from the company’s balance sheet. As a result, the value of the company actually decreases with the decrease in the amount paid. As a result, the rental income is higher than the dividend yield.
The Buoyancy Of Real Estate
We’ve seen how quickly stock gains pass. By 2021, easy money and massive stimulus sent equity bleeding. Meta went from $270 to $376, then fell 73% to $99 in 2022, erasing years of gains in a short amount of time. Thank you it came back.
But now software companies in just six months have lost more than 6 years of gains relative to the S&P 500, due to fears that AI will make SAAS companies and the like obsolete. Even the bellwether Microsoft, the company I own, lost about 20% of its value in just one month.
Housing also rose in 2020 and cooled in 2022 when prices rose. But unlike a 20% correction in the S&P or a 25% – 70% drop in tech stocks, national home prices are pretty much stagnant. Even in the hardest hit states like Texas and Florida, the decline was about 15% after 50%+ benefits. You don’t often see a housing correction wipe out years of appreciation as quickly as stocks sometimes do.
In economics, the issues are permanent. If the gain seems temporary, you save it. If it feels strong, you use it.
A classic example is don’t spend too much if you think there will be a tax increase after a year of tax cuts.
2) Real Estate Wealth is “More Visible,” Making It More Practical
Stock earnings live on screen. Invisible numbers that go up and down every trading day. You know they can disappear as quickly as they appeared, so don’t be too careful.
Property wealth is real and tangible. You go through it. You sleep in it. Disrespectful neighbors let their dog defecate on your front lawn. Similar sales are guaranteed. A $4.05 million closure across the street is being heard the original in a way the brokerage balance does not.
This seems to make wealth more accessible psychologically, even if you don’t plan to sell it. It builds confidence. Confidence leads to spending.
That’s why record-breaking neighborhood sales can make you feel rich. com has just reset your internal reference point. You can’t help but compare your home to theirs and increase your net worth in the process.
3) Real Estate Profits Take More Effort, Stock Profits Much More
When a house sells for a new record, it becomes a public event. Agents talk about it. The neighbors are whispering about it. Assessors are re-evaluating their opinions. Profits are guaranteed by multiple third parties at once, hopefully without causing an unexpected love letter from the property tax assessor.
Stock gains, by contrast, are lonely. Nobody’s having a party because the S&P 500 is hitting new highs. And when you talk about big equity wins, people tend to think that you got lucky or took a reckless risk. Besides, no one likes to brag. Although with a recorded house sale, you don’t have to tell anyone. Everyone will eventually just find out what the price was.
Because real estate is not the only 100% investment, the benefits of real estate are palpable earnedespecially when remodeling is involved. They reward patience, discipline, constant maintenance, and long holding times. There is real work, both physical and mental, behind the result.
Climbing the property ladder takes years. Along the way, you often save hard for a big down payment, then muster up the courage to take out huge amounts of debt to buy expensive, illegal goods. That’s commitment.
Since the idea is that real estate wealth is worth it, it makes using it seem irresponsible. By comparison, the passive nature of stock investing makes returns feel closer to luck, leading to a feeling of weakness.
Why the $10 Milkshake Matters
Both stocks and real estate create wealth effects. But real estate wealth tends to feel more permanent, more tangible, and more rewarding. That combination makes people more willing to loosen their purse strings.
That’s why a record-breaking home sale down the block can justify an overpriced car repair, a binge lunch, or even a $10 milkshake you didn’t need in your growing gut.
When enough people feel confident at the same time, spending increases, risk-taking becomes rational, and the real economy begins to flourish.
Get Central Buildings As Soon As Possible
If the wealth effect of feeling good from real estate is stronger than the stock market’s return, the rational take is no more speculative. It is to find neutral real estate early.
Neutral means owning your primary residence so that housing inflation no longer works against you. Instead of price increases making life more stressful, they quietly start working in your favor by:
- Inflation protection for your ongoing capital expenditure
- Forced savings with principal payment
- Long-term appreciation supported by rising replacement costs
You don’t need a portfolio of rental properties to benefit. Having just one home already changes the equation. By covering your housing costs, you are hedging a large expense out of your budget. For many families, that alone provides adequate ownership—even before appreciation or rental income comes into the picture.
The psychological benefits are immediate, especially as a parent. When the shelter is secure, everything else feels manageable.
Stocks are important for long-term buying and growth. But relying solely on stock while fully exposed to housing inflation as a renter is an underappreciated risk.
Real Estate Wins Quietly
The biggest misconception is that stocks alone will bring financial security. They don’t do as much as you think. Stocks can increase your net worth on paper, but volatility makes that wealth feel fragile.
Real estate works differently. Home ownership turns your capital expenditure into an asset and turns housing inflation from a vulnerability into a hurricane. Over time, it replaces financial worries with a sense of control that individual portfolios find difficult to provide.
That’s why the feel-good wealth effect of real estate is so powerful. It’s not just about returns, it’s about permanence and stability. No matter what the market does tomorrow, your family still has a roof over their head. And that peace of mind is hard to beat.
Readers, what creates the feel-good wealth effect: real estate sales or stock market gains? If you disagree with my thesis, I would like to know why.
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