Homeownership and Investment in Real Estate Stocks

Jack Goodman

Journal of Real Estate Portfolio Management, 2003, vol. 9, issue 2, 93-105

Abstract: Executive Summary. One viewpoint is that because homeowners already own real estate, they should diversify their investment portfolios by not making additional real estate investments. This paper provides an interpretation of owner-occupied housing as an investment and presents empirical results on the financial performances of houses and financial assets, including REITs, as individual investments and within a portfolio. The analysis shows that portfolios with 10% to 20% allocations to REITs historically have generally been able to achieve higher average annual returns, with no increase in volatility, compared to portfolios without REITs. This holds not only for renters, but also for homeowners with one-third or two-thirds of their wealth invested in their house. These findings are attributable to the low correlation between changes in house prices and the returns to real estate stocks, together with the historically competitive returns on real estate stocks relative to other financial assets.

Date: 2003
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DOI: 10.1080/10835547.2003.12089678

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