From an investment perspective, U.S. housing has paled in comparison to the stock market in recent years, and rising mortgage rates will likely widen that gap.
The housing market has remained largely frozen since the COVID-era boom ended in 2022, when the Federal Reserve embarked on an aggressive rate-raising campaign to curb inflation. The Fed is tightening policy again and the average 30-year fixed mortgage rate is once again above 7%.
At the same time, the AI boom has boosted stocks, and the S&P 500 has enjoyed a streak of double-digit annual gains not seen since the late 1990s.
This has not been lost on young Americans, who have been priced out of the real estate market. They choose to rent and invest in stocks to build wealth rather than saving for a down payment on a home they may never be able to afford.
Over the past decade, this has worked well. From December 2015 to December 2025, the Case-Shiller home price index rose 87%, while the S&P 500 climbed 235%, not including dividends that further boost yields.
Ray Fisman, an economist at Boston University, and Michael Luca, an economist at Carnegie Mellon University, said the divide between the housing and stock markets should challenge Americans’ long-held views on homeownership.
“The decision to rent or buy involves real trade-offs that too often go unnoticed, especially by those who can comfortably afford to buy,” they wrote in a statement. Wall Street Journal editorial last week. “Buying a home also involves two very important, but very different, decisions: where to live and how to invest a large portion of your savings. »
Of course, the comparison is not entirely apples-to-apples, they acknowledged, emphasizing that a house offers a place to live as well as a return on investment. The U.S. tax code also has benefits for homeownership.
But even when house prices have posted robust gains, “purchase returns can be, well, meh,” the economists added.
That’s also the case so far in 2026. The latest data from Case Shiller shows that home prices are up 1.5% nationally, while the S&P 500 is up 13%, despite the war in Iran and fears of an AI failure that would send stocks into a wild ride this year.
The ability to borrow could distort how homeowners view their earnings, according to Fisman and Luca. By financing the vast majority of the purchase price while putting down only a small portion in equity, any appreciation amplifies an investment.
For example, a 20% down payment on a home that increases in value by 10% results in a 50% return on their initial equity, they noted.
But falling prices also have outsized consequences, especially since a home is a “single, illiquid, non-diversified asset.” That’s why financial advisors don’t recommend borrowing hundreds of thousands of dollars to buy a single stock, Fisman and Luca wrote.
They added that they are not saying that no one should ever buy a house. Owning has advantages, such as the ability to renovate without the owner’s permission, while renting has disadvantages, such as limited supply and the risk of being forced to move.
“The mistake we see too often is the tendency to lump together two very different decisions,” Fisman and Luca said. “Where you want to live is not necessarily where you want to invest.”
However, for those giving more thought to where to live, prospective homeowners are currently taking advantage of a buyer’s market.
Indeed, sellers granted concessions in 44.7% of home sales last month, up 2.1 percentage points from a year ago and the highest share for August since at least 2020, Redfin said in a recent report.
Incentives typically include mortgage rate buydowns or sellers agreeing to pay for repairs. To attract increasingly selective buyers, sellers are also offering household appliances, or discounts ranging from $10,000 to $20,000.
Some sellers are so desperate that they also lower the asking price. One Atlanta real estate agent even offered his client a free week-long vacation at an Airbnb owned by the seller of the home. Another in Charlotte offered an all-expenses paid cruise.
“If we were to quantify all of these concessions … we would see that housing prices are going down and people are getting better deals,” said Daryl Fairweather, Redfin’s chief economist. Fortune Sacha Rogelberg.
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