There’s an endless debate over whether real estate or stocks are the better asset class. I just realized the feel-good wealth effect adds another reason to lean toward real estate, which I’ll explain here.

In my post about avoiding the real estate frenzy zone if you want to get the best deal, I highlighted a home that sold 60% over asking, jumping from $2.5 million to $4.05 million. It was an astounding close that genuinely surprised me. I walk and drive by that house all the time and think nothing of it.

After checking in with my real estate agent for some color, she explained that early-year inventory is extremely tight, so demand is massively outstripping supply. The home was remodeled and well-located, so it deserved a strong outcome. Still, it’s not a house I ever imagined breaking the $3 million barrier this year, let alone crossing $4 million.

When I walked by the home again on my way to my auto mechanic, something funny happened. I no longer felt bad about paying more money to fix my leaking coolant. I’d already spent about $900 replacing the water pump a couple of years ago due to a coolant leak. So normally, I would be agitated.

After paying the auto mechanic $415 for the oil service and coolant leak fix (replaced a hose), I treated myself to a $10 milkshake, something I never do when getting a burger. Objectively terrible for my weight-maintenance plan. Subjectively? I felt richer so I figured why not finally spend extra for dessert.

That massive overbid created a real, immediate feel-good wealth effect.

Why the Wealth Effect From Real Estate Feels Stronger Than From Stocks

Since the beginning of 2023, we’ve had a phenomenal stock market run. The S&P 500 is up roughly 80% over the past three years, creating a meaningful positive wealth effect that has translated into higher consumption. I’ve even argued that housing affordability is better than it looks thanks to equity market gains.

Excess stock returns above historical norms have effectively bought us more time, our most valuable asset.

And yet, I’ve come to believe that the positive wealth effect from a huge real estate sale is stronger, deeper, and more durable than even a tremendous stock market rally.

Here are three reasons why.

1) Real Estate Gains Feel More Permanent Than Stock Market Gains

Real estate moves like an armored super-tanker. Even in rough waters, it doesn’t sink. It just keeps chugging along toward its destination. Stocks, by contrast, behave like jet skis: thrilling, fast, and exciting, but one unexpected swell can throw you off and let a great white shark take a bite.

Stocks have no intrinsic utility. They are “funny money.” A stock’s value can get cut in half overnight after a single earnings call. Or some random exogenous shock that causes demand to fall off a cliff could cause years of turmoil.

Real estate provides essential utility. We all need a place to live. In fact, when the world feels like it’s falling apart, housing demand can actually increase. Even in a zombie apocalypse, you’d still want a defensible home base. Your stocks aren’t going to do jack to prevent you from getting bitten.

Real estate can also generate income without impairing the asset itself. Rental income doesn’t reduce the value of the underlying property. Dividends, on the other hand, are paid directly out of a company’s balance sheet. As a result, the value of the company actually goes down my the decline in cash paid out. As a result, rental income is superior to dividend income.

The Buoyancy Of Real Estate

We’ve seen how fleeting stock gains can be. In 2021, easy money and massive stimulus sent equities to nosebleed levels. Meta went from about $270 to $376, then collapsed 73% to $99 in 2022, wiping out years of gains in a short period of time. Thankfully it came back.

But now software companies in just six months have lost over 6 years of gains relative to the S&P 500, due to fears AI will make SAAS companies and the like obsolete. Even bellwether Microsoft, a company I own, has lost almost 20% of its value in just one month.

Housing also surged in 2020 and cooled in 2022 when rates spiked. But unlike the 20% S&P correction or the 25% – 70% drawdowns in tech stocks, national home prices largely stalled. Even in harder-hit regions like Texas and Florida, declines were around 15% after 50%+ gains. You rarely see housing corrections that erase years of appreciation so rapidly the way stocks sometimes do.

In economics, permanence matters. If a gain feels temporary, you save it. If it feels durable, you spend it.

A classic example is not spending more if you think there will be tax hikes after a year of tax cuts.

2) Real Estate Wealth Is More “Visible,” Which Makes It More Spendable

Stock gains live on a screen. They’re abstract numbers that flicker up and down every trading day. You know they can disappear just as quickly as they appeared, so you subconsciously treat them with caution.

Real estate wealth is physical and visible. You walk by it. You sleep in it. Disrespectful neighbors let their dog’s poop on your front lawn. Comparable sales confirm it. A $4.05 million closing across the street feels real in a way a brokerage balance never does.

This visibility makes the wealth easier to mentally access, even if you don’t plan to sell. It creates confidence. Confidence leads to spending.

That’s why a neighbor’s record-breaking sale can make you feel richer. The comp just reset your internal reference point. You can’t help but compare your home to theirs and bump up your net worth in the process.

3) Real Estate Gains Take More Effort, Stock Gains Far Less So

When a house sells at a new record high, it becomes a public event. Agents talk about it. Neighbors gossip about it. Appraisers recalibrate their assumptions. The gain is validated by multiple third parties at once, hopefully without triggering a surprise love letter from the property tax assessor.

Stock gains, by contrast, are lonely. Nobody throws a block party because the S&P 500 hits a new high. And if you mention a big equity win, people tend to assume you either got lucky or took reckless risk. Besides, nobody likes a braggart. Whereas with a record home sale, you don’t have to tell anybody. Everybody will eventually just find out what the price was.

Because real estate isn’t a 100% passive investment, real estate gains feel earned, especially if a remodel was involved. They reward patience, discipline, ongoing maintenance, and long holding periods. There’s real work, both physical and psychological, behind the outcome.

Climbing the property ladder takes years. Along the way, you usually save aggressively for a large down payment, then summon the courage to take on a massive amount of debt to buy an extremely expensive, illiquid asset. That’s commitment.

Since the perception is that real estate wealth is deserved, it makes spending it feel less irresponsible. By comparison, the passive nature of stock investing makes returns feel closer to luck, resulting in a weaker feel-good effect.

Why the $10 Milkshake Matters

Both stocks and real estate create wealth effects. But real estate wealth tends to feel more permanent, more visible, and more rewarding. That combination makes people far more willing to loosen the purse strings.

That’s why a record-breaking home sale down the block can suddenly justify a pricey car repair, an indulgent lunch, or even an $10 milkshake you absolutely didn’t need for your growing gut.

When enough people feel confident at the same time, spending rises, risk-taking becomes more rational, and the real economy starts humming.

Get Neutral Real Estate As Early As You Reasonably Can

If the feel-good wealth effect from real estate is stronger than stock market gains, the logical takeaway isn’t to speculate harder. It’s to get neutral real estate as early as possible.

Getting neutral means owning your primary residence so housing inflation no longer works against you. Instead of rising prices making life more stressful, they begin working quietly in your favor through:

• Inflation protection on your largest recurring expense
• Forced savings through principal paydown
• Long-term appreciation supported by rising replacement costs

You don’t need a portfolio of rental properties to benefit. Owning just one home already changes the equation. By locking in your housing costs, you hedge the single largest expense in your budget. For many households, that alone justifies ownership—even before appreciation or rental income enter the picture.

The psychological payoff is immediate, especially as a parent. When shelter is secured, everything else feels more manageable.

Stocks are essential for liquidity and long-term growth. But relying solely on stocks while remaining fully exposed to housing inflation as a renter is an underappreciated risk.

Real Estate Quietly Wins

The biggest misconception is that stocks alone will deliver financial security. They don’t as much as you think. Stocks can increase your net worth on paper, but volatility makes that wealth feel fragile.

Real estate works differently. Owning your home converts your largest expense into an asset and turns housing inflation from a threat into a tailwind. Over time, it replaces financial anxiety with a sense of control that portfolios alone struggle to provide.

That’s why the feel-good wealth effect of real estate is stronger. 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 its head. And that peace of mind is hard to beat.

Readers, which creates a stronger feel-good wealth effect: a big real estate sale or stock market gains? If you disagree with my thesis, I’d love to know why.

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