Real Estate Is Crashing!

Bill Parrott |

According to Zillow, the value of my home fell 6.2% last month. I was shocked because I thought real estate always went up, especially in Austin, Texas, the home of Longhorn football, BBQ, live music, and weekend bridal shower parties. Is it time to panic and sell my home?

The recent housing data is terrible, as housing starts have fallen 20% from the April peak, and existing home sales are down 26% from January. Mortgage rates increased 84% from last year, and the current 30-year rate is 5.13%. The combination of rising interest rates and inflation is making homes less affordable.

Real estate is volatile but not as visible as stocks because homes don’t trade on a public exchange. However, Zillow and a few other real estate sites now post estimated home values and recent price changes, so you can track your home value if you want. The Case Shiller Home Price Index compiles valuation data from several markets, including a national average. Since 1987 the index has risen 304% despite a 20% correction during the Great Recession from 2007 to 2009.

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Should I sell my home? Of course not. I don’t care the value fell by 6.2% last month because it has soared 109% since 2013, and I’m not moving for several years, and I know it will rebound as most homes did from the previous recession. I will not panic and make a poor financial decision because the price dropped, and if I ask most people if I should sell my home because the price has fallen, they would tell me I’m crazy because real estate always rises. In fact, they would consider it foolish and unwise.

Yet, when stocks fall, people panic and sell their holdings, moving to cash to avoid a further meltdown. The S&P 500 lost 8.25% in June, and investors sold billions of equities. What happened in July? The S&P 500 surged 9.25%. Since 2018, the index incurred seven monthly drops of 6% or more, and each time it recovered. In December 2018, it crashed by 9.03% but climbed 17.2% over the next four months, and over the past decade, the S&P 500 jumped 255%.

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I’m not sure why people panic and sell stocks when they fall, but they do. Stocks and real estate are growth assets, creating generational wealth if you hold them through all market cycles. If people treat stocks like homes, fewer people will sell them when they fall, and some might even buy the dip. I believe real estate investors do well because they own their home for decades, don’t track the value daily, or panic if it drops. Also, it is a hassle to move from one home to another. I believe that real estate returns would be considerably less if you could buy or sell a house with a click of a mouse as they do with stocks.

Investors relish real estate because most have made money over time, especially if they live in a desirable location like Bend, Oregon, or Alpine, Wyoming. However, since 1990, the S&P 500 has trounced the Case Shiller Home Price Index by 1,903%.

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Here are a few suggestions to help you improve your stock market returns.

  • Treat your stock holdings like real estate, and own them for decades.
  • Review your investment accounts annually.
  • Rebalance your accounts as needed.
  • If you don’t need the money for three to five years or more, buy stocks when they fall.
  • Analyze your stock holdings on weekends so you can’t trade them instantaneously.
  • Document the reasons why you want to buy or sell your equity investments.
  • If you want to sell stocks during a market selloff, wait a few days because they could rebound.
  • Since 1926, stocks have averaged a 10% annual return, but it has not been in a straight line. Incorporate a buy and hold mentality so you can capture the long-term return from stocks

I know my home will recover because everybody is moving to Austin, so it’s only a matter of time before it starts to rise again. In the meantime, I will continue to mow the lawn, vacuum the house, and pay my property taxes.

Location, location, location. ~ Anonymous

August 24, 2022

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management, located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so you can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets. We have waived our financial planning fee for the remainder of the year, so your cost is $0.00.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor. I’m a California transplant living in Austin.