Sunday, August 3, 2025

Latest

Stock Prices May Still Be Elevated Given Current Mortgage Rates And Home Prices

Rising mortgage interest rates and worsening home affordability are buffeting home prices and pressuring equity markets. The bad news is that stock prices may still be too high for the current level of mortgage rates and for the stretched wallets of homebuyers.

The graphs below show 30-year fixed mortgage rates in the U.S. since 1970 and movements in the S&P 500 Index since that same year.

S&P 500 Index since 1970
U.S. 30-year fixed mortgage rates since 1970. Sources: Freddie Mac and CNN.

Not surprisingly, stocks and mortgage rates have been negatively correlated for the last half century. Stocks have followed somewhat more of a zigzag path than mortgage rates, which went down in almost a straight line fashion over most of this period, but the inverse linkage is striking.

Now, with current mortgage rates spiking to 6.84% and little reason to believe a reversal is in the near-term cards given the Fed’s oft-articulated hawkish monetary stance, it appears that stocks have more downside before index levels trade consistent with the new mortgage rate regime.

While much has changed since the early 2000’s — corporate earnings are much higher now, although inflation is too — that was the last time that mortgage rates were at about the same level they are now. In the early 2000’s, the S&P 500 Index traded at around 1,800.

According to Black Night, a mortgage data company, and John Burns Real Estate Consulting, homes are less affordable in the U.S. than they have been in decades, even during the height of the real estate bubble in around 2005. The typical U.S. home, with a median price of around US$435,000, is equivalent to just over six times the country’s US$71,000 median household income. In 2005, that ratio hit about 5.5x, by some estimates, and has averaged about 3.5x over the last 35 years.

Phrased another way and quite surprisingly, U.S. houses are less affordable now on the basis of required mortgage payments than they were when interest rates were much higher in October 1986. We do note that current mortgage payments are much less painful than they were in October 1981, the time of peak mortgage rates.

U.S. Mortgage/House Price Data (in U.S. dollars)Mortgage RateMedian U.S. Home PriceMonthly PaymentMedian Monthly IncomePayment as a % of Income
Current6.84%$435,000$2,061$5,91735%
October 19869.97%$91,488$640$2,13330%
October 198118.45%$70,398$870$1,58255%
Source: Black Night

Per Black Knight, a homebuyer today must dedicate 35% of their monthly income to cover mortgage payments assuming a standard 20% down payment and an excellent credit history. In 1986, when mortgage rates were nearly 10%, a homeowner had to plunk down just 30% of monthly income to pay the mortgage. In 1981, when mortgage rates were 18.45%, that income percentage was a staggering 55%.


Information for this briefing was found via Edgar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

Video Articles

AngloGold Buys Another Gold Junior! Augusta Gold Acquired For $197 Million

Another Gold Deal! Aris Mining Sells Assets To McFarlane

Royal Gold Goes Big | $3.5 Billion Sandstorm Acquisition

Recommended

Tsunami Warnings Spread As Largest Quake Since 2011 Hits Russia

Northern Superior Intersects 1.75 g/t Gold Over 65.0 Metres At Philibert

Related News

Canada’s Housing Starts Show a Steady Increasing Pace in June

As restrictions are gradually lifted Canadians return to work following the height of the coronavirus...

Friday, July 10, 2020, 01:35:00 PM

Canada Needs 170K New Houses Every Quarter to Supply Population Surge

At the rate the Canadian government is going, the surge in population is starting to...

Thursday, December 21, 2023, 11:21:00 AM

Ottawa Relaxes Foreign Home Buyers Rules After Loosely Banning It

Only months after the new laws went into effect, the Canadian government is removing some...

Wednesday, March 29, 2023, 12:59:00 PM

Canadian Home Sales Showing Signs of Decline, Falling by 0.7% in October

Canadian home sales posted yet another month of record-strong gains, with sales activity rising by...

Monday, November 16, 2020, 02:12:00 PM

Canadian Home Prices Reach Record-High Despite November Sales Slump

Although November home sales in Canada showed signs of a slight erosion from their historical...

Wednesday, December 16, 2020, 10:22:43 AM