12/14/25
S&P 500: 6827
Nasdaq: 23,195
10 Year Treasury: 4.1%
David R. Snyder, CFA
The housing bubble is significantly understated. From 12/19 to 7/22 the average housing prices increased 43% or 29% after inflation using a housing price model that combines median and average like for like property sales from Zillow, Redfin, HUD, FHFA and Case-Shiller and National Association of Realtors. Housing prices compound annual rate of appreciation for 2 1/2 years was 15.1% or an 11% real annual compound rate. Nothing in the early 2000’s housing bubble came close to these annual compound rates for the same time period. From 7/22 to 8/25 my model shows housing prices rose 7% while the CPI increased 9%, thus increasing at a rate below inflation. HUD data shows housing prices actually dropped during this time frame by 7%, and in real terms declined over 15%. But HUD data tracks lower income housing buyers. Overall, from 12/19 through 8/25 housing prices increased 51% with real annual compound appreciation of 4.6%. To put it in perspective from 12/99 to 12/05 housing prices increased 43% with a real compound annual returns of 5.9%. Last century housing prices rose on average about 1% per year above the inflation rate, thus the 4.6% real annual returns of the last six years are well above historical appreciation. Still significantly overpriced.
The big difference between the current housing bubble and the bubble in the early 2000’s is the lack of leverage today. Bubbles can burst in different ways. There can be a sudden burst as in the 2007-08 period or just a slow deflating of the bubble over many years. When housing prices became overheated in the late 1980’s they proceeded to increase at a 2.2% annual compound rate from 12/89 to 12/97 vs. a 3% CPI annual compound rate. Eight years of negative real annual returns in housing prices allowed housing prices to revert to their mean in real terms. That is what has been happening for the last three years.
The average mortgage rate in 12/19 was 3.8% vs. 6.4% today. The median priced house today is about $365,000. With 20% down payment that leaves a mortgage of close to $300,000 (rounded for simplicity). The average payment for a 30 year mortgage of $300,000 would be $1896. In 12/19 the median price of a house was about $245,000. With 20% down payment that leaves around a $200,000 mortgage. At a 3.9% 30 year mortgage rate back on 12/19 would yield a monthly payment of $944. Thus for the same median priced house a home buyer is paying double the monthly mortgage payment today vs. the end of 2019! But median household income has only increased 22% from $68,700 in 2019 to $83,730 in August of 2025. It is surreal. Affordability is worse than in the early 2000’s. 75% of US homes are unaffordable for the typical US household. And rent is not much better as over 50% of renters are paying more than 30% of their income for rent.
The demographics for housing are very negative. I don’t believe that we are short five million homes. The proponents of that theory use 2012 instead of 2000 as then starting point for household formation, overstating the need for new homes. Much of the growth in the population has been from immigration who have low house ownership rates. Only 27% of undocumented immigrants own a home, with still only 45% owning a home after being here 10 years or more. Even legal immigrants have lower home ownership rates at 56%. It takes 5 to 10 years for immigrants to buy a home. Baby boomers who own most of the houses are eventually going to go to retirement or nursing homes, or die. They are not going to live forever. That will unleash a huge amount of supply on the market. With birthrates dropping significantly after 2007, we know that the native population of 18 to 40 year olds will decline over the next 20 years, leaving fewer potential new home buyers. There will be a catch-up trade for millennials at some point but it won’t change the long term picture. There is only one real solution for the current overpriced market and that is to let prices fall or grow below the inflation rate. Lower mortgage rates are not helping the housing market now because it barely makes a dent in affordability. A recession would certainly provide a reset. But without rising housing prices consumer spending based on wealth effect will no longer be a positive catalyst. It has clearly helped increase high end consumer spending.
Full Disclosure: I own several of the securities mentioned positively. None have been purchased within the last month. The opinions merely represent the opinion of the author as CIO of Journey 1 Advisors, LLC and intended to inform the readers about our investment philosophy and strategy. The contents of this report are based on sources believed to be reliable. It is not intended for circulation. It is not intended to offer investment advice, or to recommend the purchase or sale of any securities or investment product. Investment advice is only given after a client has signed an investment advisory agreement with Journey 1 Advisors, LLC and will be subject to the terms and conditions therein. Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the stock’s expected performance and risk.