When Bay Area clients ask me where are home prices are headed, I love to tell them to look to the stock market—where it goes, home prices will follow. This, of course, makes sense because majority of first-time homebuyers get their down payments through their employer’s Restricted Stock Units (RSUs). I typically show the chart below displaying the correlation between the Dow Jones Index (DJI) and the average price per square foot for single-family homes in San Mateo County.
However, in the graph above, these two markets are graphed on different scales. If we graph them on the same scale, then the graph looks more like the one below.
Dow Jones Index and Home Prices
You still see the same correlation; when the stock market rises, home prices also rise, but not at the same pace. We see the gap between the two widening overtime. Simply put, the stock market is appreciating at a greater pace than single-family home prices in San Mateo County; same is true for Santa Clara County. Since 2003, home prices appreciated 260% (approx. 5% compounded annually) in San Mateo County while the Dow Jones Index increased by 381% (approx. 7% compounded annually). Most of the growth in both markets has really happened over the last 10 years.
| Time | Avg Home Price | DJI |
| Jan. 2003 | $ 752,000 | 8,054 |
| June 2024 | $ 2,705,000 | 38,750 |
| 20 Yr. Growth | 260% or 5% Y/Y | 381% or 7% Y/Y |
However, the return on both markets is really about equal when you account for the fact that you can live in the home, which means you’re saving money on rent. If you were to buy the average home without debt, then accounted for the savings of not having to pay rent and subtracted out the costs of ownership (taxes and insurance), then there is roughly a 2% benefit to owning. This puts the appreciation of owning a single family home in San Mateo County on par with the DJI.
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