The 69% Collapse in Home Prices Measured in SPY Shares

The median American home cost 1,733 shares of the SPDR S&P 500 ETF in 2006. By 2026, that number had fallen to 529 shares. A 69% decline.

The data comes from a recent analysis that compared the St. Louis Fed's median new home sales price with the SPY share price. The same exercise applied to San Francisco's median home price and the Invesco QQQ Trust showed a similar pattern. The median San Francisco home required 12,800 QQQ shares in 2016. Ten years later, it took 2,634 shares. An 80% drop.

The analysis points to a simple mechanism. The S&P 500 has returned about 11% annually over the past several decades, while national real estate prices have risen roughly 4% a year. The gap compounds. Stock investors, as a group, have seen the real cost of a home collapse.

One caveat. The FRED data tracks new home sales, and homebuilders have been building smaller houses to hit lower price points. Some of the flattening is smaller homes, not cheaper ones. The trend holds regardless, the analysis noted.

The 20-year window captures a key detail. The peak in SPY shares per home came in 2008, not 2006. The S&P 500 fell 38% in a single year while home prices declined about 15%. Anyone who kept buying index funds through that stretch effectively got a discount on housing that has only widened.

The analysis then proposes a rule: build a taxable stock portfolio equal to the price of the house you want to buy. For most people, that is not practical on a first home, so the target can be 20% of the home price – the typical down payment. Once the portfolio equals the target, the investor has options: pay cash, put down less, or keep renting.

The 2022 Divergence

The strategy has a hole. In 2022, the S&P 500 fell 18% while home prices kept climbing. The median American home went from 872 SPY shares to 1,157. A 33% jump in twelve months. If a house fund sat entirely in the S&P 500, the down payment shrank while the target got more expensive.

One year like that can push the purchase out by three good ones, the analysis said. The remedy is to own real estate alongside stocks, so the investor is on both sides of the divergence.

The analysis also advises against buying a dream home that costs more than 30% of net worth. Ideally, the dream home should be 20% or less, so the owner can actually enjoy it.

The QQQ has an Alpha Score of 47, while SPY scores 50, both in the mixed range. That suggests the stock versus home trade is not a one-way bet going forward.

The lesson for investors is straightforward. The data shows that stock ownership has dramatically reduced the cost of a home over the past two decades. The caveat is that the path is not linear, and the 2022 experience is a reminder that diversification matters.