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Risk and return within the single-family housing market

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  • Theodore M. Crone
  • Richard Voith

Abstract

The trade-off between risk and return in equity markets is well established. This paper examines the existence of the same trade-off in the single-family housing market. That market is dominated by homeowners, who constitute about two-thirds of U.S. households. For them the choice about how much housing and what house to buy is a joint consumption/investment decision. Furthermore, owner-occupied housing is by nature a lumpy investment whose risk cannot be completely diversified. Does this consumption/investment link negate the risk/return trade-off within the single-family housing market? Theory suggests the link still holds. This paper supplies empirical evidence in support of that theoretical result.

Suggested Citation

  • Theodore M. Crone & Richard Voith, 1998. "Risk and return within the single-family housing market," Working Papers 98-4, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:98-4
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    References listed on IDEAS

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    1. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, vol. 79(1), pages 125-137, March.
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    6. Berkovec, James, 1989. "A General Equilibrium Model of Housing Consumption and Investment," The Journal of Real Estate Finance and Economics, Springer, vol. 2(3), pages 157-172, September.
    7. Crone, Theodore M. & Voith, Richard P., 1992. "Estimating house price appreciation: A comparison of methods," Journal of Housing Economics, Elsevier, vol. 2(4), pages 324-338, December.
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    Cited by:

    1. Tracey West & Andrew C. Worthington, 2003. "Macroeconomic risk factors in Australian commercial real estate, listed property trust and property sector stock returns: A comparative analysis using GARCH-M," School of Economics and Finance Discussion Papers and Working Papers Series 160, School of Economics and Finance, Queensland University of Technology.
    2. William Goetzmann & Matthew Spiegel, 2000. "The Policy Implications of Portfolio Choice in Underserved Mortgage Markets," Yale School of Management Working Papers ysm161, Yale School of Management, revised 01 Mar 2001.
    3. William Goetzmann & Matthew Spiegel, 2000. "The Policy Implications of Portfolio Choice in Underserved Mortgage Markets," Yale School of Management Working Papers ysm161, Yale School of Management, revised 01 Mar 2001.

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