Yet Another View on Why a Home Is One's Castle |
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Authors: | Fuad Hasanov Douglas C Dacy |
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Institution: | Department of Economics, School of Business Administration, Oakland University, Rochester, MI 48309 or .;Department of Economics, The University of Texas at Austin, Austin, TX 78712 or . |
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Abstract: | We compute equity-based real after-tax rates of return for homeowners and landlords in the United States for 1952–2005. The study confirms that a combined aggregate for residential housing provides a high average net return and low volatility, has low correlation with financial assets and can provide hedge against inflation. The efficient frontier analysis shows that the optimal portfolio for a household with a coefficient of relative risk aversion of four to five is one which contains a bit larger amount of housing than stocks, close to what one observes in the real world. |
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