From an investment perspective, the performance of the U.S. housing market in recent years has fallen far short of that of the stock market, and rising mortgage rates are likely to further widen this gap.

Since the boom in the housing market during the COVID-19 pandemic ended in 2022, the U.S. housing market has been essentially in a frozen state. At that time, the Federal Reserve initiated a aggressive cycle of interest rate hikes to curb inflation. Now, the Fed has tightened its policies again, and the average 30-year fixed mortgage rate has returned to over 7%.

At the same time, the boom in artificial intelligence has driven the stock market upward, with the S&P 500 index continuing a rare streak of double-digit annual gains for several years in a row since the late 1990s.

This has not been overlooked by young Americans who are excluded from the housing market. They choose to rent and invest in stocks to accumulate wealth, rather than saving for a down payment on a house that they may never be able to afford.

Over the past decade, this approach has been quite effective. From December 2015 to December 2025, the S&P/Case-Shiller Home Price Index rose by 87%, while the S&P 500 Index soared by 235%—not to mention the dividends that would further boost returns.

Economists from Boston University, Ray Fisman, and Carnegie Mellon University, Michael Luca, believe that the divergence between the housing market and the stock market should challenge Americans' long-held views on owning a home.

In a column they published this week in The Wall Street Journal, they wrote: “The decision between renting or buying a home involves real trade-offs, but this is often not fully recognized, especially by those who have the means to buy a home. Buying a home also binds together two very important but distinctly different decisions: where to live and how to invest a large portion of one’s life savings.”

Of course, they also admit that this comparison is not entirely a like-for-like one, as a house not only provides a place to live but also offers investment returns. U.S. tax law also provides some benefits for those who own property.

But even though housing prices have risen sharply, "the returns on buying a house may also be, well, quite ordinary," the two economists added.

The same is true since 2026. The latest Case-Shiller data shows that housing prices across the United States have risen by 1.5%, while the S&P 500 has increased by 13%. Despite this year's Iran war and concerns about the bursting of the artificial intelligence bubble causing significant fluctuations in the stock market, the S&P 500 has still continued to rise.

Fisman and Luca believe that borrowing capacity may distort homeowners' perception of returns. Homebuyers typically only need to pay a small down payment, but they bear the majority of the purchase price through financing; therefore, any appreciation in the property value will amplify their investment returns.

For example, they point out that if a house is purchased with a 20% down payment and its value then increases by 10%, the corresponding initial return on equity would be 50%.

However, a decline in prices can also have amplified effects, especially because housing is a type of "single, illiquid, and non-diversified asset." This is also why financial advisors would not recommend borrowing hundreds of thousands of dollars to buy a single stock, write Fisman and Luca.

They added that this is not to say that no one should buy a house. Having a home also has its advantages, such as the ability to renovate it without the landlord's permission; however, renting a house also has its disadvantages, such as limited availability and the risk of potentially having to move.

“A common mistake we often see is to bundle two very different decisions together,” said Fisman and Luca. “Where you want to live is not necessarily where you want to invest.”

However, for many people who are still considering where to live, potential homebuyers are currently in a buyer's market.

In a recent report, Redfin indicated that in last month, sellers made concessions in 44.7% of property transactions, which is a 2.1 percentage point increase from a year ago and also the highest proportion since August 2020.

These incentives usually include the buyout of mortgage loan rates, or the seller agrees to cover repair costs. To attract increasingly discerning buyers, sellers may also offer household appliances, or concessions ranging in total amount from $10,000 to $20,000.

Some sellers have even gone so far as to voluntarily reduce their prices. A real estate agent in Atlanta even secured for a client a free one-week vacation provided by a Airbnb owned by the home seller. Another agent in Charlotte managed to secure a all-inclusive cruise trip.

Redfin Chief Economist Daryl Fairweather regarding Fortune's Sasha Rogelberg said: "If we quantify all these concessions... we will find that housing prices are falling, and people are getting better deals."