Can housing risk be diversified? A cautionary tale from the housing boom and bust

John Cotter, Stuart Gabriel and Richard Roll
Additional contact information
Richard Roll: California Institute of Technology

No 201412, Working Papers from Geary Institute, University College Dublin

Abstract: This study evaluates the effectiveness of geographic diversification in reducing housing investment risk. To characterize diversification potential, we estimate spatial correlation and integration among 401 US metropolitan housing markets. The 2000s boom brought a marked uptrend in housing market integration associated with eased residential lending standards and rapid growth in private mortgage securitization. As boom turned to bust, macro factors, including employment and income fundamentals, contributed importantly to the trending up in housing return integration. Portfolio simulations reveal substantially lower diversification potential and higher risk in the wake of increased market integration.

Keywords: integration; housing risk diversification; housing returns (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 G14 R12 R21 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2014-10-23
New Economics Papers: this item is included in nep-ban and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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http://www.ucd.ie/geary/static/publications/workingpapers/gearywp201412.pdf First version, 2014 (application/pdf)

Related works:
Journal Article: Can Housing Risk Be Diversified? A Cautionary Tale from the Housing Boom and Bust (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ucd:wpaper:201412

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