Looking at the 2020 housing price trend to predict the 2026 economy: Cathie Wood's new macro investment judgment

In the past 20 years of housing price trends, we can clearly see the fluctuations of the U.S. housing market— the cliff-like decline during the 2008 financial crisis, the subsequent slow recovery, and the recent three years of intense volatility. ARK founder Cathie Wood, in her latest 2026 investment outlook, uses housing prices as a key indicator to sketch a broader macroeconomic picture: although the U.S. economy appears to be growing on the surface, its internal structure is undergoing profound adjustments, like a compressed spring, poised to spring back.

This New Year’s message addresses not only housing price fluctuations but also a systematic reflection on economic cycles, technological innovation, and asset allocation. In Wood’s view, there is a significant contrast between the surface and the underlying reality of the U.S. economy over the past three years—GDP has been growing, but capital expenditures in housing, manufacturing, and non-AI sectors are struggling under dual pressures. This is a true reflection behind the sharp downward trajectory in housing prices over the past 20 years.

Housing Price Bottoming Out and Structural Economic Pressures

Looking at the data from the 20-year housing price trend, U.S. existing home sales fell from an annualized 5.9 million units in January 2021 to 3.5 million units in October 2023, a decline of 40%. This level has not been seen since November 2010, more than a decade ago. More notably, current sales volume is comparable to the early 1980s, when the U.S. population was about 35% lower than today.

This “simultaneous decline in housing prices and sales” is a direct consequence of the Federal Reserve’s aggressive rate hikes. To counteract pandemic shocks, the Fed raised interest rates from 0.25% in March 2022 to 5.5% in July 2023, a 22-fold increase—unprecedented in history. The chain reaction is that not only the housing market faces a cold winter, but manufacturing also continues to contract, with the PMI index remaining below the expansion line for nearly three years.

The pricing strategies of new home builders further confirm this trend. By the fourth quarter, to clear nearly 500,000 units of new home inventory (a level last seen before the 2007 financial crisis), Lennar’s prices decreased by 10% year-over-year, KB Homes by 7%, and D.R. Horton by 3%. These price adjustments will not disappear immediately but will gradually transmit to the Consumer Price Index (CPI) with a lag, suppressing inflation data for the coming years.

However, as Wood observes, this structural pressure is actually accumulating rebound potential. Consumer confidence among low- and middle-income groups has fallen back to levels seen in the early 1980s—an era marked by double-digit inflation and interest rates that inflicted serious wounds on the economy. But this also means that once conditions improve, there is significant room for confidence to rebound among these groups.

Policy Shift and Dual Engines of Economic Rebound

The turning point in 2026 stems from the convergence of two forces: deregulation policies and fiscal stimulus measures. The new government has appointed David Sacks as “Head of AI and Cryptocurrency Affairs,” symbolizing a fundamental policy shift. Meanwhile, tax cuts targeting tips, overtime pay, and social security are expected to bring substantial rebates to U.S. consumers this quarter, increasing real disposable income growth from about 2% annualized in the second half of 2025 to approximately 8.3% this quarter.

For businesses, accelerated depreciation policies for manufacturing facilities, equipment, software, and domestic R&D expenditures have unleashed unprecedented cash flow benefits. Any manufacturing facility construction started before the end of 2028 can be fully depreciated in the first year, rather than amortized over 30 to 40 years as before. This policy has been made permanent and retroactively applied from January 1, 2025.

The cumulative effect of these measures is evident: effective corporate tax rates are driven down to nearly 10%—one of the lowest levels globally. Meanwhile, inflationary pressures are easing across multiple dimensions. West Texas Intermediate (WTI) crude oil has fallen over 53% from its peak of $124 per barrel in March 2022, and is still down about 22% year-over-year; new home sales prices have declined by about 15%; and from the longer-term perspective of the 20-year housing price trend, the price increase has slowed from a 24% YoY rise in June 2021 to just 1.3%.

Productivity Revolution and a New Era of Deflation

If policy adjustments are the external engine, technological progress is the internal driver. Under the macro backdrop of deregulation and low interest rates, the integration of AI, robotics, energy storage, blockchain, and multi-omics technologies is expected to accelerate non-farm productivity growth to the 4%–6% range. This will further suppress unit labor cost inflation, which has already fallen to 1.2%—a stark contrast to the “cost-push inflation” of the 1970s.

Notably, the cost of training AI is decreasing at about 75% annually, and inference costs (the cost of running AI models) can drop as much as 99% per year. This unprecedented decline in technological costs will drive explosive growth in related products and services at scale.

Against this backdrop, Wood forecasts that the U.S. nominal GDP growth could remain between 6% and 8% over the next few years, composed of: 5%–7% productivity growth, about 1% labor force growth, and -2% to +1% inflation. This dynamic is very similar to the 50 years ending in 1929—an era driven by the last major technological revolution sparked by internal combustion engines, electricity, and telephone communication—an era also marked by deflationary currents, resulting in an average yield curve inversion of about 100 basis points.

New Asset Allocation Logic: Bitcoin, Gold, and the Dollar

On the asset allocation front, Wood’s analysis offers three key insights.

First is the comparison between Bitcoin and gold. In 2025, gold prices rose 65%, from $1,600 to $4,300 (a 166% increase since the end of the 2022 bear market), while Bitcoin prices declined by 6%. But from a supply perspective, the global gold supply growth rate is about 1.8% annually, whereas Bitcoin’s is only 1.3%. The key difference lies in the supply growth mechanism: gold miners can respond to price signals by increasing production, while Bitcoin’s supply growth is strictly limited by mathematical rules, with a future two-year annual growth rate of about 0.82%, further slowing to approximately 0.41%.

From a longer-term perspective, the ratio of gold market value to M2 money supply has already surpassed the historical high of 1980 (when inflation and interest rates soared into double digits), second only to the early 1930s during the Great Depression. In other words, from a historical view, gold prices are at an extreme level. During the downtrend of this ratio, stock markets tend to perform well—between 1934 and 1969, the Dow Jones rose 670% (annualized 6%), and small-cap stocks returned 12% annually; from 1980 to 2001, the S&P 500 had an annualized return of 14%, with small caps at 13%.

A particularly noteworthy point is that since 2020, Bitcoin’s returns have shown very low correlation with gold and other major asset classes, even lower than the correlation between the S&P 500 and bonds. Over the next few years, Bitcoin is expected to become an important diversification tool for asset allocators seeking to improve “risk-adjusted returns per unit.”

Secondly is the dollar’s trajectory. In recent years, the narrative of “the end of American exceptionalism” has been prominent, supported by evidence such as the dollar’s largest decline since 1973 in the first half of 2025, and a 9% drop in the trade-weighted dollar index (DXY) for the full year. But if fiscal policy, monetary policy, deregulation, and U.S.-led technological breakthroughs are deemed valid, then U.S. investment returns will outperform those elsewhere globally, driving the dollar higher. This logic is similar to the Reagan era of the 1980s—when the dollar nearly doubled.

The Investment Return Chain of the AI Wave

The AI boom is pushing capital expenditures in data centers and related fields to levels unseen since the late 1990s. In 2025, investments in data center systems will grow by 47%, approaching $500 billion; in 2026, another 20% increase is expected, reaching about $600 billion—far above the long-term trend of $150–200 billion annually before ChatGPT’s emergence.

But where do these massive investments’ returns come from? Besides semiconductors and large cloud computing companies in the public markets, unlisted AI-native companies are becoming key beneficiaries of this growth and investment return cycle. According to ARK’s research, consumer adoption of AI is twice as fast as internet adoption in the 1990s. By the end of 2025, annualized revenues for OpenAI and Anthropic are projected to reach $20 billion and $9 billion, respectively, having grown 12.5 times and 90 times within just one year—from $1.6 billion and $100 million. Market rumors suggest both are considering IPOs within the next one or two years.

At the enterprise level, many AI projects are still in early stages, constrained by bureaucratic processes and organizational inertia. But by 2026, companies will face a stark choice: train models based on their own data and iterate rapidly, or fall behind more aggressive competitors. Those capable of translating cutting-edge research into truly useful products for individuals, businesses, and developers will lead this field.

Lessons from History in a High-Valuation Environment

Many investors are concerned about current stock market valuations, which are indeed at the high end of historical ranges. But Wood’s valuation assumption is that the P/E multiple will revert to the average of the past 35 years—about 20 times.

Some of the most notable bull markets in history have evolved during periods of multiple contraction. For example, from mid-October 1993 to mid-November 1997, the S&P 500 delivered an annualized return of 21% as P/E shrank from 36 to 10; from July 2002 to October 2007, the index returned 14% annually as P/E contracted from 21 to 17.

Given the acceleration of real GDP growth driven by productivity and the expected slowdown in inflation, this dynamic is likely to recur in this market cycle—and perhaps more prominently. As seen in the 20-year housing price trend, market bottoms often mark the start of new cycles. Against the backdrop of structural pressures easing, unprecedented policy support, and accelerating technological innovation, Wood’s optimistic outlook is backed by solid data.