It’s the Housing, Stupid

A few weeks ago, I was on The Compound and Friends, and there was a debate about why we were seeing 2021-like meme stock activity and money market funds holding record assets at the same time. 

For context, both of these things are true. If we look at the performance of the 100 most shorted stocks compared to the Russell 1000, that performance spread is nearing 2021 levels:

It’s like a bunch of mini GameStop short squeezes all over again.

And if we look at the non-profitable tech retail investor participation since 2021, it’s the same story:

A subset of investors are buying into non-profitable tech stocks en masse. Where have I seen this before? 

Meanwhile, investors are also piling lots of assets into money market funds as well:

What gives? Have investors collectively decided to go all-in on the barbell strategy by maxing out risk and safety at the same time?

I don’t think so. What do I think is really happening?

Housing—or the lack thereof.

The Housing Problem

The lack of a healthy housing market (due to high prices and high interest rates) is pushing lots of cash into other opportunities. Cash that would normally be going into residential real estate is finding its way into both meme stocks and money market funds/Treasury bills.

There are two different kinds of investors that are being impacted. The risk-seeking investors are buying lotteries (i.e. meme stocks) and the risk-averse investors are buying U.S. Treasuries/money market funds.

How do I know this? Because I’m one of them! My wife and I have been holding Treasury bills for the past few years waiting for mortgage rates or home prices to come down, but neither have. So, we keep rolling Treasuries until the right moment arrives.

But it’s not just us waiting on housing either. There are a record number of people who are renting that would probably not be renting in a normal housing market. As Adina Dragos from RentCafe recently reported, “The number of renters…in the $1 million+ income category has surged by 204%.”

Yes, people with incomes greater than $1 million are renting at the highest rate in recorded history. And I don’t blame them. There are luxury rental properties out there that offer better amenities and convenience than a single family home ever could. Things like a gym, laundry pickup, rooftop lounges, and more.

Compared to the alternative of maintaining your own home after taking on an expensive mortgage, it’s a no-brainer. Once again from RentCafe (emphasis theirs):

This surge in renter millionaires can be traced to multiple factors, including robust stock market gains over the last five years, the expansion of the tech sector, the rise of remote work enabling location flexibility, and a growing preference for turnkey living solutions over the responsibilities of homeownership.

With wealthier people, time is money. So if you can provide a better and more convenient housing solution that saves time, wealthier people will flock to it.

Convenience aside, all of this is happening because, ultimately, the housing market is broken. Melody Wright, a real estate expert, sat down with Julia La Roche a few months ago and stated as much:

“Things in housing are pretty bad…This is the worst market we’ve seen in our lifetimes and March [2025] sales were lower than 2008 for existing home sales.”

Amy Nixon, a housing and economic analyst, recently tweeted a similar takeaway:

“4 years ago, I started this X (then Twitter) account because I was alarmed by how horrible the housing market was for young people.

4 years later, the housing market is still horrible for young people.

In fact, it is even worse.”

Why is the housing market worse? Why aren’t homes selling? Because the math isn’t mathing. Renting looks superior to buying throughout most of the country. As John Burns Research and Consulting noted in early July, “For the first time since 2006, purchasing an entry-level home costs more than twice as much per month as renting.”

This is an unprecedented change in U.S. housing dynamics that will impact the market for years to come.

How Does U.S. Housing Solve Itself?

Given our current situation, how does the U.S. housing market play out over the next few years? I’m not entirely sure, but here are some possible paths:

• A decade-long fizzle: Housing stays gridlocked and home prices slowly decline in real terms by not keeping pace with inflation over the next decade. 
  • Given the current players in the housing market and where rates are, this seems to be the most likely path forward. I don’t see how prices crash, but I don’t see how they continue to rise either. Median incomes can’t support home prices at their current levels (let alone at higher levels), so I’m thinking that inflation slowly solves this problem for us.
• Melt-up and big crash: Rates decline, prices shoot up, and then there’s a massive crash as incomes can’t support the elevated home values.
  • I’m less certain of the path to lower interest rates than I was a year ago, but if they happen, a lot of prospective buyers will enter the market. All else equal, this may put upward pressure on already elevated home prices. I don’t know exactly how this goes south, but as soon as a downturn hits, incomes won’t be able to support home values and we get another housing crash. This is probably my least preferred path of the three, but I could see how it materializes if rates get low enough.
• The big build (and price declines): We build lots of housing and prices eventually come down (irrespective of what rates do).
  • Of all of the possibilities I can imagine, this one seems to be the most unlikely. Why? Because as Steve Randy Waldman brilliantly wrote—Home is where the cartel is. In the U.S. more housing doesn’t get built because NIMBYs don’t allow more housing to get built. They block such projects in their local communities because they (rationally) want to protect their home values. While I would love to see more housing built to increase affordability (like what happened in Austin, Texas), I also know how politically challenging this is. If housing stays unattainable for long enough though, I think we’ll see an outpouring of support for more housing to be built. Only time will tell.

Knowing my luck, none of these paths will come to pass and a fourth option (outside of my current imagination) will occur. As the saying goes, “It’s tough to make predictions, especially about the future.”

While I don’t know the future, I do know what’s causing a lot of what we are seeing both in markets and in the economy at large. It’s the housing, stupid.

Thank you for reading!

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This is post 462. Any code I have related to this post can be found here with the same numbering: https://github.com/nmaggiulli/of-dollars-and-data

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