Lack of liquidity in real estate is a good thing

stock market downI love my debates with the financial types about the merits of investing in real estate.  They only seem to have eyes for the stock market.  The debate inevitably turns to, real estate is illiquid and is therefore bad.  With the stock market one can sell whenever they want to, proving it’s liquidity.  However there is a flaw with this logic.  In 2008, when the market crashed, many people sold many of the stocks within their portfolios.  This only served to realize their losses.  Prior to selling their stock, the loss was strictly on paper.  Once they sold, that loss was very real with no chance to recoup those losses.  Now what if those same people kept their money in the market and didn’t sell?  Six years later and the stock market is doing very well and most of those stocks have increased markedly.  Had they not sold, they could take advantage of those profits now.  The fact that the stock market is liquid made it too easy for people to sell and realize their losses.  Liquidity hurts the stock market investors. 

If we look at real estate during the recessionary period in the early 1990’s when the real estate market was down.  Some sold their homes and accepted the loss.  Others held onto their homes & didn’t take the loss which was only on paper.  Many years later, all of those home values have increased substantially proving that illiquidity is a good thing.  If the stock market was more illiquid, it would help those who always sell too quickly, realize more profits instead of loss.  So next time you hear someone tell you that the illiquidity of the real estate market is a bad thing, please tell them to think again.