Max makes a critical error in his analysis of real estate. Most people make this error. Don't be like most people. Understand nuance.
➡️ Max is comparing stocks from bottom (2022) to real estate at peak (2022).
➡️ Then, he's judging on a 4-year playbook, saying housing is a bad investment because of those 4 years.
Many people will agree with Max. Short-term "realistic assumptions" usually outweigh facts and logic.
Unfortunately, most people seem not to realize that the real estate cycle and stock market cycles are not always aligned. People tend only think of the 2008 alignment (a legitimate housing crash, whose derivatives hurt the stock market too).
but...
➡️ Stocks dropped 26% into 1982. Real estate was flat; sales volumes collapsed. But prices were flat to up. The Fed was fighting inflation. Big divergence between stocks and real estate. Max, would probably have sold stocks here and bought real estate. (Selling stocks here would have been a mistake.) But that's what a "4-year" track record buys you.
➡️ Stocks dropped over 26% into 2022. The Fed was fighting inflation again. Real estate has peaked and flattened in most markets for a few years, while some overbuilt markets (specific to just those areas), did see declines. Stocks rocketed from 2022 on. Big divergence again.
So, by Max's logic, you should have sold all your stocks in 1982 and bought housing. Because real estate outperformed stocks in 1982. Again, a mistake based on short-term'ism.
The correct answer, as usual, is you should probably diversify into BOTH, so you don't have your entire portfolio on one part of the cycle. That's VERY painful in a downturn.
My research suggests the stock market is much closer to a top today than the real estate cycle. I'm not bearish; I'm actively buying stocks and real estate. But let's be real, they're totally at different stages of the cycle.
Quoted context
These are the quoted author’s words.
Buying a house is hands down the worst financial decision we’ve ever made
- after 4 years (bought in 2022) we’re just now roughly breakeven on appreciation vs the ~7% transaction costs on the way in vs way out if we were to sell
- considering $ invested into improvements (main reasons we bought was so we could “make it our own”) we’re down ~20% overall on total cash in vs current equity value. For the vast majority of improvement projects, you get back 50-80% at best on increased value vs cash spent
- on a monthly basis, mortgage (6.5% rate) + taxes + insurance + repairs / maintenance have worked out to ~ 25-50% more expensive vs what it would cost to rent the same house each month
- considering opportunity cost on the down payment (sold S&P500 below 4000 and BTC below $30k to fund it), we’re down 50% on the “investment” overall
We’re lucky to be in a position where $ was not the most important factor for us here. We were clear going in it was an emotional decision we made for non-financial reasons, so we don’t regret it
But the difference b/w buying vs owning financially have been pretty staggering
Owning a home today is financially retarded
MaxAnderson ↗