Fun with Numbers: Jackson Hole Real Estate vs. the S&P 500

At Bootpack, one of the services we offer is guiding clients through the complexities of purchasing homes in Jackson and other competitive markets. While the usual factors—income, mortgage rates, taxes —play essential roles, one consideration often takes center stage: potential home price appreciation (HPA).

Many clients wrestle with the decision to tap into their stock portfolios to fund a home purchase. They seek our advice on the trade-offs between stock market returns and the growth potential of Jackson’s real estate. It’s a compelling comparison, given the wealth built through real estate in this area.

We all know someone who struck gold—whether by buying in Teton Village back in the early 2000s or flipping a property during the COVID boom. It’s only natural to wonder: Should I stretch for that larger home in a prime location to potentially capture a slice of the action?

For our clients, we run detailed cost-benefit analyses, tailored to their specific circumstances. For those outside our client base, I thought it would be insightful to share some of the high-level historical data we track, along with some insights on the impact of carrying costs, leverage and timing for added context.

For Jackson HPA, we use historical data from the Teton County Assessor’s office, starting in 2003. This data includes private sales and excludes condos, townhomes and affordable/workforce housing. For market comparisons, we use the annual return of the S&P 500.

In 2003, the median sale in Teton County was $450,000. By 2023, 20 years later, that number had risen to $3,325,000, representing a staggering cumulative increase of 639%, or an average annual growth rate of 10.5%.

In comparison, the S&P 500 grew by 536% over the same period, with an average annual return of 9.7%, closely aligning with its historical performance since 1923.

Below is the year-over-year growth data alongside the S&P500. I also added National (median) home sale data for perspective.

Observations:

• Viewed through a data lens, Jackson residential real estate has seen remarkable growth over the past 20+ years, outperforming national home price averages by a factor of six and even surpassing one of the best-performing asset classes of the last century: U.S. equities.

• Of the 638% cumulative return (10.5% annualized), 2/3rds of the total price appreciation occurred during the pandemic years of 2020–2023, with a 224% cumulative gain (34% annually). A home priced at $1.025 million in 2020 surged to $3.325 million by the end of 2023.

• From 2003 to 2019, the annual appreciation rate was 5.3%— almost double the national average of 3.2% - but far less dramatic than the explosive COVID-era growth.

• Jackson real estate wasn't immune to the 2008 financial crisis. In the four years following the GFC, the median home price dropped from a pre-crisis high of $952,000 to a low of $601,500 in 2012, marking a 36% cumulative decline, or an annualized loss of 11%.

However, home price appreciation alone only tells part of the story, as it doesn't account for two critical factors in owning residential real estate: the cost of ownership and the impact of leverage through a mortgage. Both of these elements are unique to each individual, making broad, macro-level analysis challenging.

Nevertheless, we’ll give it a shot.

Outside of professional real estate investors, few homeowners have a clear understanding of their true maintenance and ownership costs. While property taxes, home insurance and HOA fees are easy to track, expenses like HVAC and roof repairs, landscaping, fuel, and those "quick trips to Ace Hardware" often aren't.  And everyone spends differently on their home upkeep.  For clients, we make informed estimates based on historical costs, square footage, and the condition of the specific homes they're targeting.

To derive this across Teton County, we rely on broader assumptions. 

Pulling from a variety of sources (and excluding mortgage costs), they are:

After factoring in the assumed 3.76% annual costs, the historical return for Teton County residential real estate decreases from 10.5% to a still impressive 6.7% per year (266% cumulative). This represents the experience and “paper profit” of a theoretical buyer who purchased a $450,000 home in 2002, paid for entirely with cash, and made no additional renovations (and excludes buying/selling transaction costs). 

As the chart indicates, most of the after-cost gain came in the COVID era, when median prices jumped 34% per year. 

Finally, let's consider the impact of mortgage leverage. Most buyers contribute between 10-50% as a down payment and finance the remainder. For this hypothetical scenario, let’s assume our 2003 homebuyer secured a standard 30-year fully amortizing mortgage on a $450,000 home, with a 20% down payment ($90,000) and a 4.8% interest rate. The 4.8% rate reflects the average 30-year mortgage rate from 2003 to 2023, accounting for potential refinancing opportunities along the way.

In this case, annual mortgage costs would amount to $22,665 (fixed), split between principal and interest, in addition to the 3.76% annual maintenance expenses we assumed earlier.

When we factor in leverage, unsurprisingly, the return for our 2003 homebuyer is gangbusters:

Over 20 years, turning a $90,000 down payment into $2.14 million in home equity equates to an impressive 16.3% annualized return (before accounting for transaction costs).  Again, the majority of home equity growth results from the recent COVID era, when home prices shot up 34% per year.  You’d be hard pressed to find any other asset that has performed as well over the same time frame!

While the appreciation seen in the past is impressive, it's important to remember that, as stated in every financial disclosure, past performance is not indicative of future results. If you're considering purchasing a residence in Jackson today with similar costs and leverage, should you expect the same stock market beating returns over the next 20 years?

Based on a host of economic surveys, our 10-year return forecast for the S&P 500 is 6.4%, almost 4% below its historical performance.  This accounts for today’s higher valuations after the extraordinary bull market over the past 15 years which saw US large cap stocks return 14% per year.

While we don’t have a team of economists forecasting Jackson real estate prices, it's reasonable to expect some degree of mean reversion as well. As the earlier data shows, the annual home price appreciation (HPA) rate surged from a 16-year average of 5.3% to a four-year average of 34.2% during the COVID pandemic, when high-income individuals flocked to Jackson as a refuge.  

What does the math look like if HPA reverts to pre-pandemic average of 5.3%?   Using the above framework and assumptions, let’s use 2003–2019-time frame as an example: 

Over 16 years, after factoring in ownership and mortgage expenses (assuming a 30-year fixed-rate mortgage at 4.8%), the cumulative home equity gain is 35%, or about 2.1% per year—roughly in line with the inflation rate. Carrying costs substantially reduced the real financial return despite the home value doubling.  Over the same period the S&P 500 returned 10.3% annually.   

We don’t believe Jackson median price growth will necessarily fall back to 5% levels any time soon – there is just too much demand and not enough housing stock (though we are not real estate experts).  However, I think it’s important for those entering the housing market today not to expect the eye-watering real estate gains they witnessed since 2020.  The headline grabbing 10.5% annual growth rate is an average of two periods, the pre-COVID 5.3% era and COVID 34% era.  Like our S&P 500 forecasts, HPA will undoubtedly moderate from the high-end range, which we can all agree is probably a good thing.

In addition, when you hear how your neighbor’s house is worth 4x from when they bought it decades ago, it is important to consider the real costs of homeownership.  While no homeowner experienced exactly the scenario we analyzed—3.76% annual maintenance costs and an 80% mortgage at a 4.8% interest rate—it serves as a reasonable proxy for the average Teton County homeowner.  The two “after costs and leverage” outcomes—annualized returns of 2% versus 16%, just four years apart—highlight the stark return on capital difference one might experience due to timing and market conditions.  

Buying a home in Teton County can feel like tackling a multi-variable calculus problem—there are countless inputs and steps to navigate before you arrive at a solution that actually adds up.  We hope the above provides a few insights into historical HPAs and costs (and doesn’t further muddle the decision!)

————————

Disclosure:

The content provided in this blog post is for informational purposes only and should not be considered as investment advice or a recommendation to buy, sell, or hold any specific security or financial product. The information expressed represents the personal opinions of the author and may not necessarily reflect the views of Bootpack Financial Partners, LLC.

Investing involves risk, including the potential loss of principal. Past performance is not indicative of future results. All investments involve risks, including the loss of principal. There is no guarantee that any investment strategy will achieve its objectives or that it will be profitable.

Before making any investment decision, it is recommended that you consult with a qualified financial advisor who is familiar with your personal financial situation. This blog post may include information or references to specific securities or strategies; however, the author or Bootpack Financial Partners, LLC does not guarantee the accuracy, timeliness, or completeness of this information.

The author may hold positions in some of the securities or investments mentioned, and these positions may change at any time. Neither Bootpack Financial Partners, LLC nor its affiliates are responsible for any losses or damages resulting from the use of this content.