U.S. consumers are experiencing significant financial strain due to elevated credit card debt and high mortgage rates, with the housing affordability index at 98 indicating median-income families struggle to qualify for a home, leading to a slowdown in existing home sales. Despite this pronounced consumer weakness, the S&P 500 is at all-time highs, largely driven by the increasing dominance of business-to-business companies, particularly those benefiting from AI spending, which are less reliant on direct consumer spending. This divergence suggests a market where consumer-facing sectors face headwinds while the broader market thrives on different economic drivers.
Key PointsCredit card debt and mortgage rates are elevated. High interest rates and home prices have made housing unaffordable for average Americans, leading to a slowdown in existing home sales. Consumer health is having a progressively lower impact on the stock market due to the dominance of companies that sell products and services to other businesses, rather than directly to consumers. - 10 stocks we like better than S&P 500 Index › Credit card debt and mortgage rates are elevated. High interest rates and home prices have made housing unaffordable for average Americans, leading to a slowdown in existing home sales. Consumer health is having a progressively lower impact on the stock market due to the dominance of companies that sell products and services to other businesses, rather than directly to consumers. Investors often view the stock market as a representation of the broader economy. But that's not entirely true. Consumer spending is under considerable pressure, as evidenced by underperformance in the consumer discretionary and consumer staples sectors. Restaurant and retail stocks are getting hammered. Earnings at home improvement giants like Home Depot have been ticking down in recent years. Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now, when you join Stock Advisor. See the stocks » The Federal Reserve's decision to lower interest rates could be a boon for consumer spending. But don't expect a recovery overnight. Here are five debt and housing metrics investors may want to pay close attention to, given that the S&P 500 (SNPINDEX: ^GSPC) is at an all-time high. Credit card debt and mortgage interest rates are straining consumers The following chart shows U.S. credit card debt and the 30-year mortgage rate over the last 20 years. Credit card debt was steadily rising leading up to the 2008 financial crisis. But then, mortgage rates and debt fell. Credit card debt rose again during the pandemic, but mortgage rates remained relatively low. Then, they plummeted to multi-decade lows. And those low borrowing costs, paired with government stimulus checks and increased savings rates, led to a sharp decline in consumer spending. The last few years have seen a concerning increase in credit card debt and much higher mortgage interest rates. Investors can think of a U.S. household's financial health as similar to assessing a company. A leveraged balance sheet, or in this case, debt, leaves less room to spend. And higher mortgage interest rates make houses less affordable. In fact, there are numerous metrics that suggest the housing market is anticipating a prolonged period of unaffordability. Housing has become unaffordable for many Americans Take a look at the 10-year change in three of the most useful metrics for analyzing the housing market. The Case-Shiller Housing Index is like the S&P 500 of housing. But instead of tracking the prominence of the largest U.S. companies by market cap, it measures the change in value of single-family homes in the U.S. The index's elevated level shows that houses are expensive. But it tells only part of the story. Arguably, what's more important than housing prices is housing affordability, which is a combination of mortgage rates and home prices. Here's where the U.S. fixed housing affordability index comes into play. According to the Federal Reserve Bank of St. Louis: [A] value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that a family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment. This index is calculated for fixed mortgages. The index is currently sitting at 98 and change. Meaning that, on average, a family earning a median income can't qualify for a home (assuming a 20% down payment) due to a combination of high housing prices and mortgage rates. As a result, U.S. existing home sales have plummeted, meaning folks are struggling to sell houses at market value. The stock market is roaring despite consumer weakness The key takeaway from the discussed debt and housing metrics is that many consumers are carrying higher balances on their credit cards and can't afford homes. Even if the Fed continues to lower interest rates, it won't solve these problems overnight. Some consumers may still put off buying homes -- and discretionary spending in general -- to try to reduce debt and boost savings. So far, the saving grace has been a strong job market, as evidenced by low unemployment of just 4.3%. Or, put another way, a lot of people have jobs, but aren't making enough money to afford homes or discretionary goods. So they are taking on debt and delaying homeownership. These metrics are worth noting because they affect consumer-facing stocks. So, while many restaurant and retail stocks look cheap, these industries are beaten down for good reasons. Now is a great opportunity to pick up shares in ultra-high-quality consumer discretionary stocks that are built to last. But debt and housing metrics also reinforce why there are two sides of the stock market, and why business-to-business companies are doing so well. Or more specifically, there's a growing divide between the strength of corporate balance sheets and consumers. Artificial intelligence spending should continue to increase, which could lead to earnings growth and stock market gains, but it may not benefit Americans who aren't meaningfully participating in the market. Overall, these debt and housing indicators deserve attention and warrant some concern, given their significant influence on the consumer economy, even if their impact on the stock market is somewhat limited. Should you invest $1,000 in S&P 500 Index right now? Before you buy stock in S&P 500 Index, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and S&P 500 Index wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $621,976! Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,150,085! Now, it’s worth noting Stock Advisor’s total average return is 1,058% — a market-crushing outperformance compared to 191% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor. Stock Advisor returns as of September 29, 2025 Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. The current market exhibits a significant divergence between the S&P 500, which is trading at all-time highs, and the deteriorating financial health of the U.S. consumer. This consumer strain is evidenced by elevated credit card debt and high mortgage rates, which have pushed the U.S. fixed housing affordability index to 98, indicating a median-income family cannot qualify for a median-priced home. Consequently, existing home sales have plummeted, and consumer-facing sectors like discretionary and staples are underperforming, with specific weakness noted in restaurant, retail, and home improvement stocks like Home Depot, where earnings are reportedly declining. The broader market's resilience is attributed to its increasing composition of business-to-business (B2B) companies, which are more insulated from direct consumer spending. Secular growth drivers, such as corporate spending on artificial intelligence, are fueling earnings in this segment, creating a clear divide between robust corporate balance sheets and pressured household finances. While a potential Federal Reserve rate cut may offer some relief, it is not expected to be a short-term solution for deep-seated consumer debt and housing affordability issues.
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