US Households and Investment Cycles
In the US market, there is an interesting long-term data pattern. It shows how US households divide their net worth between real estate and equity. One part shows how much money goes into homes and property, while the other part shows how much goes into stocks. This data goes back almost eighty-five years and clearly shows a repeating cycle. (see the image below)
Real Estate vs Equity Over Time
Over many years, the share of net worth in real estate has mostly stayed close to, or higher than, equity. Whenever real estate prices rise faster, the share of money in property goes up. At the same time, the share invested in stocks usually goes down. This back-and-forth movement has repeated many times in the past.
What Happened During High Inflation
In the 1970s, inflation rose very fast in the US. During this time, real estate prices increased strongly from the early 1970s to the mid-1980s. Stock markets did not grow at the same speed. Because of this, the share of net worth in equities slowly fell, while real estate took a bigger role in household wealth.
Housing Boom and Stock Recovery
A similar pattern appeared again between 2003 and 2007. Housing prices moved up sharply, but stock markets did not rise much during that phase. Later, after this period, equities started doing well again. Over the last ten to eleven years, stocks recovered strongly, while real estate saw slower growth and even weakness in some phases.
Is the Cycle Repeating Again
Now the same question is coming up once more. Earlier, when equity crossed real estate in net worth share, it was followed by a recession and a market crash. Today, conditions look somewhat similar. Inflation may rise again, interest rate cuts are being discussed, and recent data shows unemployment slowly moving up. If a slowdown happens, money may start moving out of equities and back into real estate.
US vs India Investment Pattern
This cycle is much clearer in the US because a large part of household money is invested in stocks. In India, the situation is very different. A very small share of household net worth is in equities, while more than half is in real estate. Because of this, equity risk at a household level is much lower in India. In the US, higher equity exposure makes these cycles more visible and more powerful.
