Mortgage rates above 7% have left U.S. home prices trailing the S&P 500 for a decade, and younger Americans shut out of buying are renting and putting cash into stocks instead.
Fortune reported that from an investing standpoint, American homes have paled next to the stock market in recent years, and the fresh surge in mortgage rates is likely to widen that mismatch.
The average 30-year fixed mortgage rate is back above 7%. That freezes out many would-be buyers already shut out since the COVID-era housing boom ended in 2022, when the Federal Reserve began an aggressive rate-hiking campaign to rein in inflation and is tightening policy again.
Younger Americans who cannot swing a down payment are choosing to rent and invest in stocks rather than park savings for a house that may stay out of reach.
From December 2015 through December 2025, the Case-Shiller Index of home prices increased 87%. Over the same window the S&P 500 soared 235%, not counting dividends.
The gap has not closed. Latest Case-Shiller figures show home prices up just 1.5% nationwide so far in 2026. The S&P 500 is up 13% over the same stretch.
That equity hot streak of double-digit annual gains has not been seen since the late 1990s. An AI boom has supercharged stocks even as an Iran war and fears of an AI bust sent markets on a wild ride this year.
Boston University economist Ray Fisman and Carnegie Mellon University economist Michael Luca made the case in a Wall Street Journal op-ed published this past week. They argued the split between housing and stocks should challenge long-held views of homeownership as the default path to wealth.
Fisman and Luca wrote:
"The rent-versus-buy decision involves real trade-offs that too often go unrecognized, especially by those who can comfortably afford to buy,"
They added that buying a home bundles two very different choices:
"Buying a home also bundles two very important, but very different, decisions: where to live, and how to invest a large chunk of your life savings."
On pure investment performance, they put it plainly: "the returns to buying can be, well, meh."
A home still provides a place to live, and the U.S. tax code carries benefits for homeownership. Those points do not erase the performance gap the numbers show.
Small down payments magnify equity returns on paper and can hide the weaker underlying price growth. A common example: a 20% down payment on a house that rises 10% in value produces a 50% return on the initial equity stake.
That leverage works both ways. When prices stall or rates lock buyers out, the same math leaves households with less mobility and capital tied up in an asset that has lagged equities for a decade.
The housing market has largely stayed frozen since the 2022 boom faded. Fed rate hikes aimed at inflation raised the cost of a mortgage and kept many younger buyers on the sidelines.
For households that can never assemble the down payment under current rates and prices, the rent-and-invest route is not ideology. It is arithmetic.
The S&P 500’s decade-long lead over Case-Shiller home prices, the 13% equity gain so far in 2026 against 1.5% for homes, and mortgage rates back above 7% all point the same direction. Capital that can compound in equities is not forced into a bundled housing bet that has delivered weaker results.
Fisman and Luca’s warning stands: treating homeownership as an automatic wealth machine ignores the separate decisions of where to live and how to invest a large share of life savings. When the investment half of that bundle posts “meh” returns while stocks race ahead, families locked out of buying already have a clear signal.
High rates and soft home-price growth are the bill for earlier inflation. Younger workers facing that bill are voting with their wallets, renting the roof and owning the index fund.