With high interest rates and soaring housing prices making it difficult to “buy my own house,” young people are turning to the stock market instead of real estate, which is a traditional means of investment. According to the Wall Street Journal (WSJ) on the 12th (local time), young people in the U.S. are “movement” to the stock market as access to the real estate market declines. This is contrary to the past when U.S. households used home purchases as their main means of securing assets. According to the National Association of Real Estate Agents (NAR), the U.S. Z-generation home ownership rate has recently reached 16%, and the first-ever home purchase rate last year was the lowest since 1995. About 4.03 million homes are expected to be sold in the U.S. this year, which is lower than the previous 2024.
As interest rates and real estate prices rise together, the housing market is rapidly freezing. According to the WSJ, the average home price in the U.S. currently stands at around $400,000, and if a home is purchased by taking out a loan at an interest rate of 6.5%, the monthly repayment will soar to $2,170. This is 36% of the after-tax income of middle-level household income earners, and if property taxes, insurance premiums, and various maintenance expenses are added to this, housing expenses may easily exceed half of the income.
On the other hand, if a similar-sized apartment is rented, the annual cost difference will widen to $8,000 to $14,000, depending on the region, and this gap will serve as an opportunity to change the direction of investment for the younger generation. In addition, a number of trading apps that paid “zero fees” have appeared, including the mobile stock trading platform “Robinhood,” and it is interpreted that young investors are increasing stock trading as the psychological distance to stock investment narrows.
According to the JPMorgan Chase report, 37% of 25-year-olds held investment accounts last year, a six-fold increase from 2015 (6%). The report analyzed that “savings are shifting to financial assets instead of real estate due to structural problems in the housing market,” and that “stocks are recognized as more attractive or accessible investment destinations than housing assets.”
In fact, the New York Stock Exchange recently broke its high point by setting up a fire column. Earlier on the 10th, U.S. President Donald Trump predicted a massive tariff hike against China, and major indexes of the New York Stock Exchange plunged, but until just before, the S&P 500 Index and the tech-heavy Nasdaq Index each reached record highs, raising investors’ expectations.
However, when comparing the real rate of return, the results of stock and real estate investments are similar. For example, if $60,000 is invested in buying stocks instead of housing and $13,500 is invested steadily per year saved by rent, an asset of about $354,000 can be formed in 10 years under the premise that an average annual return of 9% is achieved. If a house worth $400,000 is purchased at a 6.5% interest rate for the same cost, the house value will be $592,000 in 10 years, with a net asset of about $305,000.
Jim Egan, a Morgan Stanley real estate strategist, explained, “Housing utilizes leverage through loans, so even if house price growth is lower than the stock market, it can produce similar returns.”
The benefits of home ownership have not disappeared at all. Homeowners will be exempted from capital gains taxes up to $250,000 for individuals and $500,000 for couples, and will be able to prepare for their retirement without worrying about monthly rent when living for a long time, as well as non-financial advantages such as housing stability and autonomy.
However, experts predicted that the influx of young people into the stock market will continue for the time being, given that home purchases are not considered the “unique ladder of wealth” as in the past. “The balance may change again if housing prices fall or rents surge in the future, but the tight competition between the stock market and the real estate market will continue for the time being,” said strategist Egan.
SAM KIM
US ASIA JOURNAL
