Why the Housing Market is More Important than the Stock Market for Most People

You might think you need to worry about the stock market. However, a great post by Ben Carlson on the Wealth of Common Sense blog makes the very compelling point that the stock market is probably not the most important barometer of financial health for most Americans. That award should go to the housing market. Home prices and interest rates are the metrics that should worry most middle and low income households.

housing market

Let’s explore why the housing market is so important to most households.

It is the Very Wealthy Who Own the Most Stocks

It is the already wealthy who stand to gain and lose the most when the stock market goes down, not the majority of Americans.

The top 1% of all households own 53.9% of the shares in the markets and the top 10% own nearly 90%. The 50-90% of the households own 10.5% and the bottom 50% own a measly .6%.

Real Estate Holdings Are Somewhat More Evenly Distributed

When it comes to real estate, the wealth is more evenly distributed up and down the wealth curve.

The top 10% own less of an overall percentage of the real estate pie. They own 44.5% of real estate (vs. 90% of stocks).

The majority of real estate holdings, 42.4% (vs. 10.5% of stocks), are owned by those in the 50-90% range of all households. And, the bottom 50% own 13.1% of all real estate (vs. .6% of stocks).

The Real Estate Market Impacts More People than the Stock Market

The stock market makes the front page and can cause hand wringing by all kinds of people. However, as the data above shows, it is the real estate market that impacts the greatest number of people.

Home Equity is a Bigger Part of Average Household Wealth than Savings

According to the February 2024 ICE Mortgage Monitor report, the average homeowner currently has about $299,000 in home equity. That is significant growth over the average equity of $185,000 that was seen just a few years ago.

If you are lucky enough to live in an area where home values are increasing and your home is paid off or you are steadily making mortgage payments, then home equity growth is the ultimate in passive income. According to Freddie Mac, the average for home equity growth is 3% a year, but it will be much higher in some locales.

Average Home Equity is Much More Valuable than Average Savings

Average savings balances are less than a quarter of the average home equity. Americans have a weighted average savings account balance of $41,600 which includes checking, savings, money market and prepaid debit cards.

NOTE: Both savings and home equity balances can vary greatly by age and location. How do you compare? Review average cash, savings, home equity and other balances…

Housing Debt is Also an Important Metric for the Majority of Americans

The top 10% holds 70% of the net worth in this country while the bottom 90% accounts for 75% of the debt, largely in home mortgage loans.

So, If It’s Not the Stock Market, Which Financial Metrics Are Most Meaningful to the Majority of Households?

Because home equity and mortgages are big components of the balance sheets of the majority of U.S. households, interest rates, inflation, and the health of the housing market are what will have the greatest impact on the financial security of the most number of people.

Let’s explore those metrics:

Health of the housing market

High home values can continue to bolster the net worth of many households.

And, the home equity can be turned into cash to help cover retirement or other expenses if necessary.

A strong housing market can somewhat make up for low savings rates. Explore ways to cut housing costs or cash in on home equity.

Interest rates

Interest rates are a huge lever since they affect both housing prices and mortgage payments (if you have an adjustable rate mortgage). 

When rates rise like they are today, then mortgage rates go up too and people can borrow less which means they can’t pay as much for houses. So, housing prices tend to flatten or in some cases go down. 

Similarly for people who have an adjustable rate mortgage, when rates go up their mortgage rates and monthly payments can go up which leaves less money for other expenses and saving and investing.

Inflation (and how it impacts debt)

Inflation is definitely hurting middle and low income households who are not seeing their incomes rise in proportion to the the increase in prices.

However, one of the few silver linings of high inflation is that it can benefit those in debt. Debtors gain from inflation because they repay creditors with dollars that are worth less in terms of purchasing power. For example, while you might still owe $100,000 on your mortgage, inflation has caused that $100,000 to be worth less now than it was when you borrowed it.

As Carlson wrote, “considering the bottom 90% holds 75% of household debt and the bottom 50% has roughly one-third of all debt, inflation is disproportionately helping the debts of the middle and lower classes.”

What Metrics Matter to You?

Use the NewRetirement Planner to evaluate all aspects of your financial life – including home equity, savings, investments, taxes, inflation, other debt, and so much more.

Gain full control over your financial situation and see what really matters to your own financial health.

NewRetirement Planner

Do it yourself retirement planning: easy, comprehensive, reliable

NewRetirement Planner

Take financial wellness into your own hands and do it yourself retirement planning: easy, comprehensive, reliable.

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