From an investing standpoint, U.S. residential real estate has fallen well behind equities in recent years, a gap that is likely to widen as mortgage rates climb above 7 percent. The housing market has been largely stalled since the post‑COVID boom ended in 2022, when the Federal Reserve began an aggressive rate‑hiking campaign to tame inflation. The Fed is tightening again, pushing the average 30‑year fixed mortgage rate back above the 7‑percent threshold.
Stock Market Outpaces Housing Returns
At the same time, an artificial‑intelligence‑driven rally has propelled the S&P 500 to double‑digit annual gains not seen since the late 1990s. Over the decade from December 2015 through December 2025, the Case‑Shiller Index of home prices rose 87 percent, while the S&P 500 surged 235 percent, a figure that excludes dividend returns that would raise the equity gain even further.
Economists Ray Fisman of Boston University and Michael Luca of Carnegie Mellon University highlighted this divergence in a recent Wall Street Journal op‑ed. They argued that the traditional “rent‑versus‑buy” decision involves trade‑offs that many buyers overlook, especially those who can comfortably afford a purchase. Their piece noted that buying a home bundles two distinct choices: where to live and how to invest a large portion of life savings.
While acknowledging that a home provides shelter and tax benefits, the scholars warned that even robust price appreciation can translate into modest investment returns. In 2026, the latest Case‑Shiller data showed nationwide home prices up just 1.5 percent, whereas the S&P 500 posted a 13 percent gain despite geopolitical tensions and concerns about an AI‑related market correction.
Fisman and Luca also pointed out that financing practices can distort perceived returns. A typical buyer who puts down 20 percent and sees a 10 percent rise in home value actually enjoys a 50 percent return on the equity invested. Conversely, price declines have outsized effects because a home is a single, illiquid, undiversified asset. The economists stressed that financial advisers do not recommend borrowing large sums to purchase a single stock, underscoring the asymmetry in risk.
They clarified they are not advocating against home ownership altogether. Ownership offers advantages such as the freedom to remodel, while renting carries downsides like limited supply and the risk of relocation. Their central message was that “where you want to live need not be where you want to invest.”
Buyers Find More Concessions Amid a Softening Market
Prospective homeowners, however, are currently benefiting from a buyer’s market. Redfin reported that sellers offered concessions in 44.7 percent of home sales last month, a rise of 2.1 percentage points from a year earlier and the highest August level since at least 2020. Concessions typically include mortgage‑rate buy‑downs, seller‑paid repairs, or the inclusion of household appliances, with monetary values ranging from $10,000 to $20,000.
In some cases, sellers have resorted to creative incentives. An Atlanta real‑estate agent relayed that a client received a free week‑long Airbnb stay owned by the seller, while a Charlotte agent noted an all‑expenses‑paid cruise offered to a buyer. Redfin chief economist Daryl Fairweather told Fortune’s Sasha Rogelberg that quantifying these concessions would reveal that home prices are effectively lower and buyers are receiving better deals.
The combined effect of high borrowing costs, modest home‑price appreciation, and generous seller incentives is prompting younger Americans—many of whom have been shut out of the housing market—to rent and allocate savings toward the stock market instead. As the S&P 500 continues to outpace residential real estate, the traditional view of home ownership as the primary path to wealth accumulation faces renewed scrutiny.
Norman Pearlstine is the Executive Editor and Co-Founder at News Raise. With over two decades of experience across financial journalism, corporate governance, and market analysis, Norman leads the editorial direction and ensures strict adherence to journalistic accuracy and ethics.
