Wednesday, April 05, 2006

Real Estate

Yesterday in my undergrad class (FIN 422) we covered real estate as an investment. Hence a few stories and links you may find interesting:

From the Washington Post: Economy too reliant on housing? - Highlights -
"The U.S. economy is more dependent on housing than it has been in a half-century, as the sector fuels consumer spending and has accounted for nearly three-quarters of the nation's job growth in the past five years."
And later in same article:
"Nationally, the number of homes sold declined every month from August to January, according to the National Association of Realtors. Builders started work on 4.8 percent fewer units of housing in February than a year earlier, following years of sharp increases in construction.

So far, the housing slump appears not to have caused much economic distress, but the consensus of Wall Street economists' predictions is that growth will slow in the second half of the year, in part due to the housing slowdown."


"Americans snapping up second homes — as investments or vacation properties — accounted for four out of every 10 sales of existing homes last year....Nearly 28% of homes bought last year were for investment purposes, and an additional 12% were vacation homes...."

Some evidence of low correlations between stocks and real estate can be found in this paper by Quan and Titman as well as Goetzmann.

And finally a list of real estate related indices from Dow Jones.

1 comment:

David Porter said...

Dear Finance Professor,

I am a big fan (although realistic) of real estate as an investment.

My wife and I have turned $117,000 into $850,000 in just 7 years by owning "second homes" in the right spots.

If I can help any of your students, drop me a line.