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Risk and return within the single-family housing market

  • Theodore M. Crone
  • Richard P. Voith

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.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 98-4.

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Date of creation: 1998
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Handle: RePEc:fip:fedpwp:98-4
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  1. 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 157-72, September.
  2. Goetzmann, W.N., 1990. "The Single Family Home In The Investment Portfolio," Papers fb-_90-15, Columbia - Graduate School of Business.
  3. 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.
  4. William N. Goetzmann & Roger G. Ibbotson, 1990. "The Performance Of Real Estate As An Asset Class," Journal of Applied Corporate Finance, Morgan Stanley, vol. 3(1), pages 65-76.
  5. Roger G. Ibbotson & Laurence B. Siegel, 1984. "Real Estate Returns: A Comparison with Other Investments," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 219-242.
  6. Karl E. Case & Robert J. Shiller, 1988. "The behavior of home buyers in boom and post-boom markets," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 29-46.
  7. 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 125-37, March.
  8. Brueckner, Jan K, 1997. "Consumption and Investment Motives and the Portfolio Choices of Homeowners," The Journal of Real Estate Finance and Economics, Springer, vol. 15(2), pages 159-80, October.
  9. Archer*, Wayne R. & Gatzlaff+, Dean H. & Ling*, David C., 1996. "Measuring the Importance of Location in House Price Appreciation," Journal of Urban Economics, Elsevier, vol. 40(3), pages 334-353, November.
  10. Richard Meyer & Kenneth Wieand, 1996. "Risk and Return to Housing, Tenure Choice and the Value of Housing in an Asset Pricing Context," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 24(1), pages 113-131.
  11. Gat, Daniel, 1994. "Risk and Return in Residential Spatial Markets: An Empiric and Theoretic Model," The Journal of Real Estate Finance and Economics, Springer, vol. 9(1), pages 51-67, July.
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