IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpfi/0510005.html
   My bibliography  Save this paper

Measuring and Analyzing Returns on Aggregate Residential Housing

Author

Listed:
  • Fuad Hasanov

    (Oakland University)

  • Douglas Dacy

    (University of Texas at Austin)

Abstract

This paper computes an aggregate real after-tax rate of return on residential real estate in the United States. We account for net rental income, capital gain, and subsidies due to tax provisions for homeowners in constructing a total return measure. We also compute separate returns to owners and rentiers (that is, households who rent to others). Both quarterly and annual data over 1952-2000 period are used in the analysis. We compare our measure of return with that in the literature and analyze how housing compares to other assets in the household portfolio. Our approach provides a more comprehensive measure of return than that found in the literature. We confirm that residential housing provides a high average return and low volatility, has low correlation with other assets such as stocks and bonds, and exhibits high positive correlation with inflation. The efficient frontier analysis shows that the residential housing providing diversification should be an important part of the household portfolio. Our results also indicate that housing may be as good an investment as stocks (S&P 500).

Suggested Citation

  • Fuad Hasanov & Douglas Dacy, 2005. "Measuring and Analyzing Returns on Aggregate Residential Housing," Finance 0510005, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:0510005
    Note: Type of Document - pdf
    as

    Download full text from publisher

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0510/0510005.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Joe Peek & James A. Wilcox, 1991. "The Measurement and Determinants of Single‐Family House Prices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(3), pages 353-382, September.
    2. Marjorie Flavin & Takashi Yamashita, 1998. "Owner-Occupied Housing and the Composition of the Household Portfolio Over the Life-Cycle," NBER Working Papers 6389, National Bureau of Economic Research, Inc.
    3. 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, September.
    4. Michael Bond & Michael Seiler, 1998. "Real Estate Returns and Inflation: An Added Variable Approach," Journal of Real Estate Research, Taylor & Francis Journals, vol. 15(3), pages 327-338, January.
    5. Fogler, H Russell & Granito, Michael R & Smith, Laurence R, 1985. "A Theoretical Analysis of Real Estate Returns," Journal of Finance, American Finance Association, vol. 40(3), pages 711-719, July.
    6. repec:cdl:ucsdec:qt89x293v9 is not listed on IDEAS
    7. Karl E. Case & Robert J. Shiller, 1990. "Forecasting Prices and Excess Returns in the Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(3), pages 253-273, September.
    8. 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, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fuad Hasanov & Douglas C. Dacy, 2009. "Yet Another View on Why a Home Is One's Castle," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(1), pages 23-41, March.
    2. Christou, Christina & Gupta, Rangan & Nyakabawo, Wendy & Wohar, Mark E., 2018. "Do house prices hedge inflation in the US? A quantile cointegration approach," International Review of Economics & Finance, Elsevier, vol. 54(C), pages 15-26.
    3. Pat Wilson & John Okunev & Guy Ta, 1994. "Are Real Estate and Securities Markets Integrated? Some Australian Evidence," Working Paper Series 42, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    4. Wen‐Shwo Fang & Kuan‐Min Wang & Thanh‐Binh T. Nguyen, 2008. "Is Real Estate Really an Inflation Hedge? Evidence from Taiwan," Asian Economic Journal, East Asian Economic Association, vol. 22(2), pages 209-224, June.
    5. Òscar Jordà & Moritz Schularick & Alan M. Taylor, 2019. "The Total Risk Premium Puzzle," NBER Working Papers 25653, National Bureau of Economic Research, Inc.
    6. Donald R. Haurin & Patric H. Hendershott & Dongwook Kim, 1991. "Local House Price Indexes: 1982–1991," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(3), pages 451-472, September.
    7. Theodore M. Crone & Richard P. Voith, 1999. "Risk and Return within the Single‐Family Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(1), pages 63-78, March.
    8. Tiffany Hutcheson & Graeme Newell, 2018. "Decision-making in property Investment by Property Fund Managers," ERES eres2018_295, European Real Estate Society (ERES).
    9. Arkadiusz Górski & Kamila Urbańska & Agnieszka Parkitna, 2020. "Identification of risks of investments into residential premises for rent in Poland," WORking papers in Management Science (WORMS) WORMS/20/15, Department of Operations Research and Business Intelligence, Wroclaw University of Science and Technology.
    10. Theodore M. Crone & Richard Voith, 1996. "Risk and return in the single-family housing market," Working Papers 96-16, Federal Reserve Bank of Philadelphia.
    11. Norman Miller & Liang Peng, 2006. "Exploring Metropolitan Housing Price Volatility," The Journal of Real Estate Finance and Economics, Springer, vol. 33(1), pages 5-18, August.
    12. Ji, Tingting, 2004. "Essays on consumer portfolio choice and credit risk," MPRA Paper 3161, University Library of Munich, Germany.
    13. Di, Zhu Xiao & Belsky, Eric & Liu, Xiaodong, 2007. "Do homeowners achieve more household wealth in the long run?," Journal of Housing Economics, Elsevier, vol. 16(3-4), pages 274-290, November.
    14. Weida Kuang & Peng Liu, 2015. "Inflation and House Prices: Theory and Evidence from 35 Major Cities in China," International Real Estate Review, Global Social Science Institute, vol. 18(2), pages 217-240.
    15. Gunther Maier & Shanaka Herath, 2009. "Real Estate Market Efficiency: A Survey of Literature," SRE-Disc sre-disc-2009_07, Institute for Multilevel Governance and Development, Department of Socioeconomics, Vienna University of Economics and Business.
    16. William Goetzmann & Eduardas Valaitis, 2006. "Simulating Real Estate in the Investment Portfolio: Model Uncertainty and Inflation Hedging," Yale School of Management Working Papers amz2476, Yale School of Management, revised 01 May 2006.
    17. Mr. Damien Puy & Mr. Anil Ari & Ms. Yu Shi, 2020. "Foreign Demand and Local House Prices: Evidence from the US," IMF Working Papers 2020/043, International Monetary Fund.
    18. Kuang-Liang Chang & Nan-Kuang Chen & Charles Ka Yui Leung, 2016. "Losing Track of the Asset Markets: the Case of Housing and Stock," International Real Estate Review, Global Social Science Institute, vol. 19(4), pages 435-492.
    19. Essafi Zouari Yasmine & Nasreddine Aya & Simon Arnaud, 2020. "The Role of Housing in a Mixed-Asset Portfolio: The Particular Case of Direct Housing within the Greater Paris Region," Working Papers hal-02537087, HAL.
    20. Patric H. Hendershott & Thomas G. Thibodeau & Halbert C. Smith, 2009. "Evolution of the American Real Estate and Urban Economics Association1," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(4), pages 559-598, December.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • G - Financial Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:0510005. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: EconWPA The email address of this maintainer does not seem to be valid anymore. Please ask EconWPA to update the entry or send us the correct address (email available below). General contact details of provider: https://econwpa.ub.uni-muenchen.de .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.