Capital Markets Update #21

This week we thought a bit about housing in America, but not from a purely statistical standpoint.  The question we’re trying to probe is understanding the consequences, if any, of the change in homeowner demographics from 1990 to today.  We recently witnessed a CNBC anchor lament America’s “deplorable” housing market; “housing is America’s second largest source of wealth and there is literally nothing good going on in the housing market today” was basically this individual’s takeaway.  While new home sales may be down because interest rates are up, we’re not convinced this accurately captures the reality of the market.  For instance, from 2010 to today, the S&P 500 is up 670% while the average sale price for a new home is up 187%.  For the purely economically motivated amongst us, putting $250k in the S&P vs investing in a labor-intensive, illiquid asset like a home has proven to be a smart decision over this period.  So, how should we think about homeownership in the United States today and should feel comfortable with the present state of our residential real estate market?

In some ways, you can boil the health of our residential real estate market down to a few facts.  First, average home values are hovering around all-time highs at $515,000 (FRED).  Second, total Household Equity in Real Estate floats around its all-time high at about $34T (FRED), while average homeowner LTV is down within two points of its all-time low at 46% in 2026 from 75% in 2011 (ICE – old Black Knight mortgage data).  Finally, the delinquency rate on first lien mortgages is hovering around its all-time low at 3.4% (ICE).  However, over our study period, the median homebuyer age has risen precipitously from about 35 years in 1990 to 56 years today (Apollo).   In many ways, these stats represent an exceptional report card for our residential sector, with homeowner demographics serving as the statistical outlier.  But what’s driving this shift in underlying homeowner demos?

Consumer net worth in America is largely made up of corporate equity, real estate equity, other assets (cash, pension entitlements and liquid durable goods) and, finally, net debt.   If the S&P 500 has a $60T market cap (Fidelity), it’s wild to recognize that Americans own approximately $175T in total household net worth. We almost own three S&P 500’s.  As of the Fed’s 2025 statement of Consumer Financial Accounts, Americans own approximately $48T in real estate assets, $58T in corporate equity, $35T in pension assets, nearly $9T in durable goods and a ton of other stuff.  After netting out about $20T in liabilities, primarily made up of $14T in mortgages and $5T in consumer debt, you get to approximately $175T in net worth.  To put that further into perspective, the best estimates we’ve found out of Germany came from Deutsche Bundesbank, which estimates German household net worth of approximately $325K per household, on average.  The Government estimates the country holds approximately 41.5MM households, which would impute approximately $13.5T in total household net worth.  We saw other unverifiable estimates up to $19T total household net worth; but there’s a comp and its stark. 

So, what lies at the heart of changing homeowner demographics? Culturally, America canonized home ownership as a stepping-stone to achieving the American Dream long ago.  Homeownership, to some degree, both provided and conveyed financial security, stability and perhaps even capacity.  In 1990, about 64% of Americans owned a home (FRED) while about 33% of Americans owned equities (Fed Survey of Consumer Finances).  By 2000, 67% of Americans owned a home, while stock ownership had jumped to about 54%.  In 2005, home ownership peaked at 69% and collapsed years later at the nadir of the GFC fallout to 63%.  Today, home ownership sits around 65% while, similarly, about 65% of households participate in the stock market (Gallup).  If you were to make the broad assumption that the marginal new corporate equity owner over the last 15-years was likely under 40, largely due to this demographic cohort’s technological proficiency and rising financial literacy, it’s understandable that the prototypical millennial use of new funds during the first 15-years of their earnings career were over-invested in stocks as opposed to home equity.  Why? Because you earned 670% in the S&P vs 187% in the housing market.

So, if nothing is perceptively wrong with home values, LTV’s, default rates, etc. then what we’re really arguing about is demographic trends and the decision to rent vs own amongst younger generations.  If that’s the case, then we must say that out loud.  This is not an argument about the solvency of the US residential system and more a commentary on changing societal decision making.  Said another way, it’s irrational for a millennial to brag about the size of their stock portfolio and associated management skills, while simultaneously complaining about the cost of rent.  This is a decision made freely without coercion.  The millennial generation, along with ensuing generations, have accurately discerned it to be an economic advantage to invest in stocks vs home equity at the outset of their earnings careers.  This economic incentive, coupled with lower marriage rates (47% today vs 56% in 1990 – Census Bureau) and an increase in age for first time marriages (30 for men today vs 26 for men in 1990, with women consistently about two years their junior), somewhat explains the change in homeowner demographics.  Additionally, households with children under 18 have dropped from about 49% of households in 1990 to 39% in 2025 (Census). Furthermore, we can’t underestimate the advantage of immediate liquidity.  Yes, if you have a 50% LTV home you can refinance and capture equity value, but that takes time and you’re de-facto accepting meaningful interest rate risk on the refi.  With a stock portfolio, you can literally create cash by end of day.  Thus, while society may lament the increasing share of renters beyond the age of 30, society also must recognize the opportunity cost on the equity required for a downpayment today is exceptionally high.  This opportunity cost becomes particularly expensive as marriages are happening less often and producing fewer kids.

In summary, we’re hard pressed to find meaningful weakness in the housing market data. Our review of the data shows no structural threat to the US housing market, writ large.  While some argue homes are two expensive for individuals to purchase, we must point to the fact that overall homeownership rates today are roughly equal today to rates in 2000.  So, we don’t think that’s a very good argument.  A JCHS-Harvard study notes that the percentage of renters which are moderately to severely “rent burdened” has risen from about 40% in 2001 to about 50% in 2024, by way of US Census data extrapolation.  Not every renter owns equities, but we’re talking specifically about the likely younger, probably millennial individuals which chose to rent vs own.  This cohort hopefully (and perhaps likely) invested their would-be-downpayment and clipped 10% in US equities over the last 25 years vs the 1.7% increase over inflation renters they paid on 30% of their annual income to rent vs own.  To codify that math, a 20% downpayment on a home in 2000 would represent approximately $45k.  That $45K in the S&P would be worth about $300k today.  30% of the average wage in 2000 was about $15,000.  The national rent index is up about 230% since then, meaning this theoretical tradeoff would have paid out about $250k ($300k stock value today less $45k invested) at the cost of about $20k in lost rent.  Thus, again, we see the US residential real estate market as having evolved over the last three decades.  It no longer constitutes the primary, if not the only, means through which society can generate net worth outside of annual incomes.  Accordingly, we have to look at renting vs home ownership as a choice.  Similarly, we have to recognize the rise in stock market participation and all of its benefits as somehow tied to this rent vs own choice, at its core.  What’s most important is the data shows that, on balance, Americans have been quite thoughtful as to how they’ve grown their net worth and the country is better for it.