The impact of housing on a homeowner's investment portfolio
DOI:
https://doi.org/10.61190/fsr.v21i2.4670Keywords:
Inflation hedge, Portfolio diversification, Residential real estate, HousingAbstract
We examine the inflation hedging and portfolio enhancing properties of residential real estate that makes up a significant part of the individual homeowner-investor's investment portfolio. Using 22 S&P/Case-Shiller city-level and composite indices, we show that residential real estate is at best a modest hedge against inflation. Adding residential real estate can potentially enhance the mean variance efficiency of portfolios made up of financial assets such as stocks and bonds. However, to take advantage of the diversification benefits of residential real estate, homeowner-investors must rebalance their portfolios periodically, which may not always be a practically feasible option.
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