US real estate equities relative to the benchmark S&P 500 have dropped to their lowest ratio in history, erasing all relative gains built prior to the 2007 housing boom. The performance ratio comparing the iShares US Real Estate ETF (IYR) to the SPDR S&P 500 ETF (SPY) slid to 0.122, according to market data highlighted by Charlie Bilello, chief market strategist at Creative Planning.
Key Takeaways
- The IYR/SPY ratio dropped to a record low of 0.122, marking a 73% decline from its peak of 0.46 in February 2007.
- Freddie Mac reported that average 30-year fixed mortgage rates hit 7.28% on October 1, reaching their highest level since November 2023.
- Peter Schiff declared the property stock sector "dead" on October 5, 2026, citing the reversal of historically low interest rates and subsidies.
Higher Rates and Broader Market Gains Drive Record Slump
The drop in relative performance represents a 73% fall from the peak of about 0.46 reached in February 2007, just months before the subprime mortgage crisis emerged. While the metric reflects relative equity returns rather than a collapse in physical home values, it illustrates how tech-heavy broad market indices have drastically outpaced real estate investment trusts (REITs) over nearly two decades.
Financing pressures continue to weigh on property firms. Data from Freddie Mac's weekly survey showed average 30-year fixed mortgage rates climbing to 7.28% on October 1, marking the highest rate since November 2023. As the Federal Reserve returns to rate increases, elevated borrowing costs raise interest expenses for REITs while making their dividend payouts less competitive relative to fixed-income assets.
Industry Economists Warn of Structural Challenges
Commenting on the technical setup on October 5, 2026, Peter Schiff, chief economist at Euro Pacific Asset Management, argued that property shares face further downside. Similar to how Peter Schiff predicted market pressures in crypto financing, he stated that real estate equities previously thrived on steadily declining mortgage rates and federal support. With both trends reversing, Schiff stated the sector is "dead."
Additionally, with 10-year Treasury yields hovering above 5%, investors are securing risk-free yield without taking on real estate exposure. Amid broader treasury yield forecasts, high baseline rates continue to limit capital allocation into interest-rate-sensitive property funds.
Why It Matters
The record-low IYR/SPY ratio demonstrates a macro shift in investor capital allocation, driven by high interest rates that erode the attractiveness of REIT dividends. Persistent yields above 5% on sovereign debt create competitive head-winds for capital-intensive real estate models across broad markets. Until long-term Treasury yields and mortgage rates shift downward, property equities will likely continue to lag broader equities in total returns.
