Housing affordability has reached a critical low. You’ve likely seen this claim repeatedly: either wages must climb or home prices must fall to restore pre‑COVID affordability levels.
When you gauge a home’s cost by income alone, the statement holds. But when you express the price in terms of stock shares owned, the picture changes dramatically.
This distinction is more significant than most housing commentary from the last five years. The authors are often using the wrong metric for a substantial portion of their readership.
The Inexpensive San Francisco Housing Market
Consider this illustration: the chart below shows the price of a median San Francisco home expressed in QQQ shares, the NASDAQ ETF. Although San Francisco is often labeled one of the nation’s priciest housing markets, the reality may differ.
In 2016, purchasing the median San Francisco home required roughly 12,800 QQQ shares. By 2026, that figure had fallen to about 2,634 shares—an 80 % drop.
Clearly, not everyone held 12,800 QQQ shares in 2016. If you did, you were already affluent, and this analysis simply celebrates that position.
You don’t have to match the full home price in stock holdings to experience this effect. A 20 % stake—reflecting the usual down payment—is far more attainable, and it’s where the wealth benefit becomes tangible.
Since we don’t all live in San Francisco, let’s apply the same analysis nationwide.
The chart below, constructed from St. Louis FRED data on median U.S. home prices since 2006, expresses those values in SPY shares, a leading S&P 500 ETF.
In 2006, acquiring the median U.S. home required approximately 1,733 SPY shares. Two decades later, the requirement fell to about 529 shares—a reduction of roughly 69 %.
The 20‑year perspective reveals a nuance the 10‑year view omits. The peak actually occurred in 2008, when the S&P 500 dropped 38 % in a single year while national home prices slipped about 15 %. Investors who continued purchasing index funds throughout that period have effectively enjoyed a housing discount ever since.
Consequently, for U.S. stock investors overall, the true cost of purchasing a median‑priced home has collapsed—not merely moderated, but fallen as sharply as the price of a large‑screen television.
A caveat deserves mention: the FRED series reflects new‑home sales, and builders have reduced unit sizes over the past four years to meet affordability targets. Part of the observed flattening stems from smaller homes rather than lower prices. The overall trend remains valid, but it’s important to note this nuance.
What This Means for Your Stock Portfolio Goal
Over the past several decades, the S&P 500 has delivered average annual returns near 11 %, compared with about 4 % for the national real estate market. Hence, long‑term, consistent investment in the S&P 500 is a sound strategy.
When leverage and obligatory mortgage payments are factored in, the average homeowner still accumulates substantially more wealth than the average renter. Saving and investing the disparity each year proves challenging for most people; a mortgage functions as a forced savings plan that’s hard to abandon.
The key takeaway from this stock‑to‑home conversion is straightforward: aim to accumulate a taxable investment portfolio whose value matches the price of the home you desire.
If you eye an $800,000 residence, set a target of amassing an $800,000 taxable portfolio in addition to your 401(k), IRA, and other tax‑advantaged savings.
Naturally, this approach may be unrealistic for many first‑time buyers. As a practical alternative, aim for at least 20 % of your desired home’s price. Either strategy tends to make homeownership more affordable over time, given the long‑term outperformance of stocks relative to real estate.
You Want The Optionality to Pay Cash
When your taxable portfolio reaches the value of your desired home—plus a buffer for capital‑gains taxes—you gain flexibility.
You may choose to pay the full amount in cash, or opt for a smaller down payment. The decision hinges on how much capital you wish to lock into the property, your market outlook, and the size of your overall net worth.
Cash purchases frequently secure a discount, eliminate financing contingencies, and accelerate closing. At the very least, in a competitive bidding situation, an all‑cash offer distinguishes itself from financed bids.
During a tour of semi‑mansions in Honolulu last summer, I calculated what paying cash would look like if I sold my San Francisco primary residence at a favorable price.
I concluded that I lack sufficient wealth to comfortably afford such a property. Paying cash at that level would consume an excessive share of my net worth and would feel like an imprudent use of funds.
My guideline is simple: avoid purchasing a dream home that exceeds 30 % of your net worth. (This does not apply to starter homes.) Crossing that threshold often leads to stress, irritability, and regret over the investment you’ve made.
Ideally, accumulate enough wealth so that your dream home represents no more than 20 % of your net worth. At that level, you can truly enjoy the property.
Readers, Do you count your taxable stock portfolio as progress toward a home purchase, or do you think of the two as completely separate goals? Have you found buying a home to be more affordable since your taxable brokerage portfolio has increased?
The Risk Of Building Your House Fund Entirely In Stocks
The strategy outlined above has a limitation, and I prefer to highlight it directly.
If you attempt to build an $800,000 portfolio to purchase an $800,000 home, you are chasing a moving target. Over the past two decades, stocks have consistently outpaced that goal, as illustrated by the chart.
Consider 2022.
In that year, stocks declined 18 % while home prices continued to rise. The median U.S. home increased from 872 to 1,157 SPY shares—a 33 % increase in just twelve months. Had your house‑fund been invested solely in the S&P 500, your down payment would have shrunk even as the home’s price rose.
A single year of such divergence can delay a purchase by roughly three favorable years.
This scenario underscores the value of holding real estate while you save to acquire more property—not as a replacement for stocks, but as a complement. Having exposure to both assets lets you benefit when their performances diverge.
Additionally, consider income. Stocks generate minimal cash flow while you hold them, whereas real estate can provide monthly rent regardless of market conditions.
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