It’s been a volatile start to 2025. In April, the S&P 500 fell 4.8%—its sharpest single-day drop in over a year—triggered by market reaction to newly announced tariffs. The Nasdaq Composite fell even more sharply, plunging over 6% and wiping out months of gains. Meanwhile, the Cboe Volatility Index (VIX), often called Wall Street’s “fear gauge,” surged over 40, marking its highest level since late 2022 and signaling a steep rise in investor anxiety.
Meanwhile, interest rate policy remains uncertain. While the Federal Reserve signaled potential cuts, inflation has remained sticky, keeping the bond market and equities on edge. This all points to a key question for investors: Where can I find stability?
Why real estate performs differently
Real estate is not immune to economic cycles; however, its behavior often diverges from public equities. This divergence can make it an attractive counterbalance in a diversified portfolio.
Real estate stands apart from more volatile asset classes as a physical, income-generating asset that doesn’t disappear when markets dip. Unlike stocks or crypto, its tangible value provides foundational utility—people will always need places to live. Over time, this fundamental demand has driven consistent price growth.
According to National Association of Realtors data, U.S. residential home prices have increased an average of 5.5% annually over the past 50 years. Add to that the structural shortage of over 3.2 million homes nationwide as of 2024 (Freddie Mac), and you have strong, sustained upward pressure on home values.
Market volatility can actually favor real estate
Interestingly, the same macroeconomic factors causing volatility in other markets can work to real estate’s advantage. For example, construction costs have climbed nearly 30% since 2020 (NAHB), slowing the development of new supply. This reinforces the value of existing properties. Meanwhile, rental demand remains strong, especially in high-growth markets across the Sun Belt and suburban regions, where occupancy rates consistently exceed 94% (RealPage).
Diversification that makes a difference
One of the most compelling reasons to consider real estate is its ability to diversify traditional investment portfolios. With a low correlation relative to U.S. equities (NCREIF), real estate typically behaves independently of the stock market. While public equities may rise and fall with daily headlines, private real estate investments tend to move on different timelines and fundamentals. As a result, real estate can provide smoother, less volatile returns, especially when publicly traded assets are under pressure.
A built-in hedge against inflation
Real estate tends to do more than endure inflation—it can outperform it during periods of rising prices. As the cost of living increases, so do rents and property values, which help investors maintain their purchasing power. From 2000 to 2020, both rents and home prices outpaced inflation in the vast majority of U.S. counties, affecting over 90% of the population (U.S. Department of the Treasury).
This inherent alignment with inflation can make real estate a dependable hedge against the long-term effects of rising costs.
Historical resilience
Real estate has a track record of holding its own during turbulent times. During the 2001 tech crash, while the Nasdaq dropped more than 75%, residential real estate values remained largely intact. And between 2010 and 2020, real estate delivered an average 8.3% annual return, outperforming bonds and trailing only U.S. large-cap stocks–but with significantly lower volatility (NCREIF).
Income in multiple forms
Real estate doesn’t just appreciate—it can also generate income. Rental properties generate monthly cash flow that can help offset inflation and provide dependable income, even while other markets may struggle. Investors can also benefit from long-term equity appreciation as a property grows in value over time.
Tax benefits
Beyond returns, real estate can also unlock powerful tax advantages. From depreciation and mortgage interest deductions to potential 20% QBI deductions through REIT structures, the tax efficiency of real estate investing enhances its total return profile.
Taking a long-term view
Speculation thrives on short-term noise. Real estate is well-suited for investors who take the long view. Dollar-cost averaging helps smooth out market timing risks, while reinvesting cash flow and appreciation can steadily compound returns over time. Most importantly, holding real, income-generating assets adds stability to a portfolio, especially when public markets are volatile or uncertain.
Closing thoughts
Amid ongoing market volatility, real estate has historically demonstrated relative resilience. Its lower correlation to public equities and its potential to generate income and offer diversification benefits may help provide balance within a broader investment strategy. While real estate is not immune to market risks, its tangible nature and consistent demand drivers, such as housing needs, can support a long-term investment approach, especially during periods of uncertainty in the stock and bond markets.
