Why are stocks and bonds considered liquid assets but houses are not?


Why are stocks and bonds considered liquid assets but houses are not?


You can sell stocks or bonds within a matter of seconds (or you will be able to in 4 minutes, when the market opens). You can’t do that with a house. That makes the stocks and bonds “considered” liquid, because that is what “liquid” means in this context.

The ability to sell and and turn into cash nearly instantaneously . Versus a home that can not be turned into cash quickly and is therefore illiquid

Let’s say I have a bag of flour and a chocolate birthday cake, and I’m in a baker’s store.

Everyone wants a bag of flour and nobody cares all that much about the specifics of it. Sure, they may want cornflour or self-raising flour, but someone will almost certainly want my flour. It won’t take me much to sell the flour once I find a buyer either – I can just pass it to them. Because it’s easy to sell, we call it liquid.

The cake, on the other hand, is harder to sell. Maybe someone wants a *wedding* cake rather than a birthday cake. Maybe they wanted vanilla rather than chocolate. Maybe they wanted a different sort of icing, or maybe they wanted to bake it themselves – you get the idea, finding a buyer is harder. Once I find a buyer, it’s not so easy to give them the cake. I need to put the right number of candles on, ice the correct name onto the cake and very carefully give it to the buyer. Because the cake is hard to sell, we call it illiquid.

Stocks versus real estate is much the same. Nobody cares overly much about one stock versus another in the same company ^(and class) and it’s an easy process to sell. Houses have major differences between one another and there’s a bunch of work to get it sold.

Stocks and bonds can be used like cash at the moment you want to sell them. Converting them to cash is a fairly simple transaction. This is because at any given time, their value is fixed. It does fluctuate on a daily basis, but so does cash when compared to world banking.
A house is still an asset, but selling a house is not a simple process. Its value is only theoretical until someone actually makes an offer, you accept and then the deal still has to close with funds transferred. Until that time the funds are transferred, that house is still yours. So this falls under a supply and demand situation. And it can be a market with a lot of flux. It also depends on your maintenance, build materials and any upgrades.
Liquid assets are those you can “liquidate” or turn to cash easily. That is not the case with a house

there are a very large number of potential buyers for your sticks and bonds available. but w way less potential buyers for your house. Liquidity literally means to flow with ease.