Author Topic: Market timing for real estate vs. the stock market?  (Read 2883 times)


  • Handlebar Stache
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Market timing for real estate vs. the stock market?
« on: June 22, 2017, 08:36:30 AM »
It seems like there's been a highly increasing amount of discussion about real estate and "the next recession". Which got me thinking: what's the difference between trying to time the market for real estate and for the stock market? ARE there any differences?

I'm a bit perplexed. What makes people think their crystal ball for the housing market is any better than the crystal ball for the stock market? Even the world's best economists/real estate investors were largely unaware that the '08 '09 recession was going to happen. Is it because housing is more localized than the stock market? That one can pick an area that's "exempt" from a real estate crash?

I think the solution, from an investing standpoint, is to buy real estate that's cashflow positive from day 1. That way if and when a housing crash occurs you're still making money.

Just food for thought...


  • Pencil Stache
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Re: Market timing for real estate vs. the stock market?
« Reply #1 on: June 22, 2017, 09:25:54 AM »
I think there's a fundamental difference here.

When is the best time to deploy your capital and take partial ownership of a company? Yesterday, but today is fine too.

But for real estate, people really shouldn't, or at least I don't count on home values increasing. You buy a house you want either based off good cash flow properties, or when the market is weak, or you find out as an individual human being you are best served owning instead of renting. You're looking for a great deal. Housing is additionally much more illiquid, and much less efficient of a market. You're not competing with the best minds across this, and every other nation on buying and selling a single house, you're dealing with one seller with a variety of different reasons for selling, and the handful of people that are currently in the market for said property at this time.

I think housing probably has some amount of inelasticity, and snap-back properties as well.


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Re: Market timing for real estate vs. the stock market?
« Reply #2 on: June 22, 2017, 02:57:30 PM »
I think it depends on how much capital you have for real estate, and whether you are doing real estate speculation or buying a home that you're going to live in.

If you're speculating on real estate, I don't think there's a fundamental difference between that and speculating on stock. But buying a home, you're usually looking at rent vs buy prices and of course the property itself (do I want to live here). I think of real estate as lots of smaller markets rather than one big market like stocks. So property in a big city might be more "recession-proof" but that extra safety net is built into the pricing (more expensive property). And then of course each housing market depends on the industry around it because of jobs. I'm not a fan of real estate investing: less liquidity, less diversification, more work, more capital requirements, and lower expected returns than the total stock market.

What I can't resolve is why leveraging capital at 5x or more (20% down) is considered ok in the housing market but any leverage is frowned upon when discussing the stock market. You still have risk in housing: if you lose your job in a recession and still have to pay your mortgage, or you're a property owner and your tenant can't pay rent.


  • Walrus Stache
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Re: Market timing for real estate vs. the stock market?
« Reply #3 on: June 23, 2017, 12:56:41 AM »
I agree with you entirely. But I don't prescribe entirely to this "never time the market - or do anything that even sounds like timing the market" thing. From 2008 to (early) 2017 I was 100% invested in stocks, now I'm 66% invested in stocks. I don't think that it is unreasonable to change investment portfolios based on prices. As a thought experiment, if stocks are high and real estate is low, don't you think that is going to change my asset allocation?

I'm not convinced that is "timing" the market, either. I'm not saying that I know if/when it will crash, but when the SP 500 has a PE of 14 it is a much better deal than when it has a PE of 26. There is less risk in not buying the SP 500 at a PE of 26 because there is less chance of large gains.


  • Magnum Stache
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Re: Market timing for real estate vs. the stock market?
« Reply #4 on: June 23, 2017, 05:36:36 AM »
My thought is that real estate is far more local than the stock market. Therefore there is more room to take advantage of inefficiencies and there are in fact more inefficiencies in the real estate market.

What this boils down to is that at any time you can "time" the real estate market if the numbers make sense. That's a key point; people talk about waiting for a recession in order to start in real estate. You start in real estate when the deal makes sense. Focus on finding a deal that makes sense. If that happens in a recession... okay. If it doesn't... okay.


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Re: Market timing for real estate vs. the stock market?
« Reply #5 on: June 23, 2017, 04:52:14 PM »
I like Matchewed's comments.

Fwiw, it seems to me that most often, real estate and stocks would be low at similar times, so that moments when an investor could wisely "time" a purchase into one category vs the other based on market prices would be rare.  Maybe I'm just overgeneralizing from the last crash.

I'm not a big market timing fan.  My thoughts have moved away from market timing through reading others' posts on this forum.
« Last Edit: June 23, 2017, 04:53:56 PM by Bicycle_B »