Juggling Dynamite

A surge in active listing supply and an increase in price reductions failed to lure more homebuyers off the sidelines in April, as US pending home sales dropped for the fourth consecutive month (chart below via Realtor.com®).See, Supply of Homes for Sale Hits a Post-Pandemic High in April—but Pending Sales Drop as Buyers Grapple With Economic Uncertainty:

The new monthly housing trends report estimates that a household now needs to earn $114,000 annually to afford a median-priced home. That’s up 70% from $67,000 just five years ago.

The sharp increase in income requirements has been fueled by both rising home prices and higher mortgage rates.

Median list prices in April were up 37% from five years ago, while 30-year mortgage rates averaged 6.73% last month, compared with 4.14% in April 2019.

The trouble is that as of March 2025, the median household income in the United States was approximately $82,675 USD, some 31k short of what is needed to qualify for a median-priced home.

Meanwhile, a Lending Tree Survey found that 25% of buy now, pay later (BNPL) users were funding grocery purchases with the loans, up from 14% in 2024. Forty-one percent of respondents to the survey said they made late payments on their BNPL loans, compared with 34% in the prior year. BNPL loans charge late fees and interest rates up to 35%. See: More Americans are financing groceries with buy now, pay later loans.

At the same time, consumer bellwether McDonald’s reported that U.S. same-store sales shrank 3.6% in the first quarter—the worst home market drop since the 8.7% plunge during the second quarter of 2020 during COVID lockdowns.

Starbucks reported that its global same-store sales fell 1% in the second quarter, fueled by a 2% transaction decline. U.S. locations saw transactions fall 4%, dragging same-store sales down 2%—the fifth consecutive negative quarter. China’s same-store sales were flat for the quarter, as a lower average ticket offset transaction growth.

Equity prices have made some ‘mean reversion’ progress year-to-date.

At the end of March, the average geometric valuation for S&P 500 companies had declined to 148% from 167% in February (below since 1900, courtesy of Advisor Perspectives). This was the lowest since June 2024, but still, the most expensive in history and three standard deviations above the long-term historic mean.

As of the fourth quarter of 2024, U.S. households and nonprofit organizations held approximately 43.5% ($50.96 trillion) of their capital in corporate equities, directly and indirectly, compared with just 15.3% ($18.33 trillion) in cash and deposits, including money market funds. 

This resulted in a ratio of equity holdings to cash savings of 2.78​ times, second only to 3.4x in the 2000 tech bubble and 2.9x in 2021 (black line below, right axis, since 1900). As we saw in past recessions and bear markets (see grey bars below), when individuals want/need to raise cash, high equity-to-cash ratios magnify downside pressure on asset prices, particularly when starting from bubble valuations (like 1960, 2000, 2008, 2021 and now). Prices have taken years to recover from past liquidation events.

This brings us to serious questions: how much “long run” do we have financially, and how much capital risk are we comfortable holding with our savings? Individuals must answer honestly and with self-awareness, hopefully informed by real-life experience. The segment below is worth a listen.

Retired Treasury bond manager Robert Kessler has always been skeptical of Wall Street’s “stocks for the long term” mantra. He explains why he is completely out of stocks in his personal portfolio—and why you should consider doing the same. Here is a direct video link.