When a House Is More Than a Home: Performance of the Household Portfolio

Abstract

Home equity investment comprises a substantial portion of the household portfolio, consequently, it can be an important source of wealth accumulation. Several studies have suggested that the United States has over-invested in housing relative to capital assets. Much of this research has been based on highly aggregated data and fails to consider the portfolio advantages of residential real estate. This study uses the mean-variance criteria and fifteen-year, before-tax, all equity real estate return series derived from the population of all sales of single-unit residential real estate for Memphis, Tennessee (140,000 transactions). We conclude that for this market, the proportion of the aggregate household portfolio allocated to residential real estate is justified.