For most families, a home is much more than just a place to live. It is typically their biggest financial asset, their largest monthly bill, and their most significant debt. For the economy as a whole, the housing market is closely connected to how confident consumers feel and how well the economy is growing. While investors have been paying close attention to global events and market swings this year, the fact that home prices are still near all-time highs continues to matter a great deal for personal financial planning.
Housing activity is uneven, but prices remain near record highs
Housing activity has been mixed over the past several years. For people looking to buy a home, the biggest obstacle to affordability is the cost of borrowing money, known as the mortgage rate. A mortgage is a loan used to purchase a home, and the interest rate on that loan determines how much you pay each month. The 30-year fixed mortgage rate — meaning a loan paid back over 30 years at a rate that never changes — is currently around 6.3%. That is well above the very low rates of 3% or less seen in 2020 and 2021, and above the average rate of 4.6% since 2008. As a result, buying a home today costs significantly more each month than it did just a few years ago, even for buyers who can afford a large down payment.
For homeowners who locked in those historically low mortgage rates in recent years, selling their home can feel like a difficult choice because they would have to give up that low rate and take on a new, higher-rate loan. This reluctance to sell has kept the number of homes available on the market relatively low, making the housing market more competitive. In March, the number of existing homes sold fell by 3.6%, reversing an earlier increase and returning close to the low point seen one year ago.
In response to this limited supply, builders have been constructing more new homes. Housing starts — meaning the number of new homes that began construction — picked up to 1.5 million units per year in January. However, it will take time before this additional supply helps bring prices down. Even homebuilders themselves appear uncertain about the road ahead. The NAHB/Wells Fargo Housing Market Index, which tracks how optimistic or pessimistic homebuilders feel about the market, dropped from 38 to 34 in April. In the stock market, the homebuilding sector within the S&P 500 index — a widely followed measure of large U.S. company stocks — has been nearly flat this year, with a gain of just 0.4%, following several years of mixed results.
Despite these challenges, home prices across the country remain near record levels. The S&P Cotality Case-Shiller indices, which track home prices nationally and in major U.S. cities, have risen steadily over time. In recent history, home prices have only experienced meaningful declines during two periods: the housing market crash of 2008 and a brief dip that followed the rapid rise in inflation starting in 2022.
High home prices generally mean that homeowners are in a reasonably strong financial position overall. This has been supported by a low unemployment rate and solid wage growth, which are key reasons why consumer spending has held up better than many expected. These positive factors have helped to offset the discouragement that many consumers feel due to inflation and job losses in some industries, such as technology.
Real estate is often the foundation of wealth across generations
As the chart above shows, real estate — meaning property such as homes and land — is an important part of the total wealth held by households across all age groups. For older Americans, real estate often makes up a large share of everything they have saved and accumulated over their lifetimes. Baby Boomers, for example, hold over $19.5 trillion in real estate, which represents roughly 24% of their total net worth (the value of everything they own minus everything they owe). For Gen X and Millennials, real estate makes up an even larger share of their total wealth — approximately 34% and 60%, respectively. Of course, real estate also represents a significant amount of debt for younger households, who have not yet had enough time to pay off their mortgages or benefit from decades of rising home values.
This concept is sometimes called the "wealth effect." When home values rise, homeowners tend to feel more financially secure and may be more willing to spend money on goods and services, which in turn supports economic growth. Interestingly, this feeling of financial security can occur even if homeowners do not actually tap into the value of their home, such as through a reverse mortgage (a loan that allows older homeowners to convert home equity into cash) or a home equity line of credit (a form of borrowing based on the value of a home).
This also highlights why it is important to look at your entire financial picture when planning for the future, not just your investment portfolio. Short-term swings in the stock market, while uncomfortable, may have less of an impact on your overall financial situation than you might think, since a significant portion of most people’s wealth is tied up in their home and other non-stock assets. In fact, depending on your personal circumstances, focusing on paying down your mortgage or other debts may be more beneficial than worrying about day-to-day market movements.
The housing market also plays an important role in measuring inflation, which refers to the general rise in prices over time. Housing costs are the primary driver of the "shelter" category within the Consumer Price Index (CPI), which is a common tool used to measure inflation. Even before energy prices pushed overall inflation higher, elevated housing costs were already an important reason why inflation has been slow to come back down to the Federal Reserve’s 2% target.
Household debt includes both mortgage and consumer borrowing
A home is not only the largest asset for most households — it is also typically the largest source of debt. The chart shown here tracks both total household debt, which includes mortgages, and consumer debt, which does not. Even as other types of debt, such as credit card balances and student loans, continue to grow, mortgage debt remains by far the largest portion of what households owe in total.
One positive aspect of today’s environment is that debt service levels — meaning the size of debt payments compared to household income — are still relatively manageable compared to historical standards. Lending standards for mortgages have also become much more conservative since the 2008 financial crisis, when household debt levels were far higher and lending rules were more lenient. That said, for households that purchased homes in recent years at higher prices and with higher interest rates, these monthly debt payments are still a meaningful financial burden.
From an economic standpoint, healthy home prices may continue to support consumers’ financial health and broader economic activity, even as housing market activity remains uneven. From a personal financial planning standpoint, it is important to understand your full financial picture. While news headlines have focused on stock market swings and global tensions, the reality is that paying close attention to aspects of your financial life closer to home — such as your mortgage, home equity, and debt levels — may have a much greater impact on reaching your long-term financial goals.
The bottom line? The housing market remains a central part of both household finances and the broader economy. With ongoing market volatility, understanding the key drivers of household wealth can help investors maintain perspective and stay focused on their long-term financial plans.