The Shape of the Yield Curve and Home Price Returns

The shape of the yield curve is getting a lot of attention at the moment given that an inverted curve has preceded every US recession over the last 60 years. Beyond the ominous empirical track record, yield curve inversion is concerning for fundamental reasons. An inverted yield curve is a negative indicator for stock returns. What does it mean for housing?

An Asset Class that Deserves a Home

Residential Real Estate

Residential real estate is the largest asset class in the world, with a value of $162TRN, and offers strong diversification benefits given its correlation to equities and fixed income of only 0.25 and -0.18, respectively. Housing is the largest component of CPI, representing 42% and accounting for more than food, transportation, education, and clothing …

Deselection in Real Estate Portfolio Construction

A strategy focused on removing the bad apples (or blueberries) among a set of investment opportunities is a simple concept, and a portfolio that is broadly invested across universe of assets except for, say, the worst 10% will naturally outperform the full set. It has a subtle, yet important, difference between an active selection investment strategy…

Home Analytics Part 3: Volatility

Predictability of an asset’s performance is a virtue. Knowing the long-run expected return isn’t enough to compel an investment. We must also determine how much variability of performance exists around that expectation…

Home Analytics Part 2: Home Price Index

What if we wanted to know how a home performs in a given year, quarter or month? In this article, we will describe how a home price index can answer this question. We will then provide index returns for select markets and walk though the math involved in generating them…

2017: End of Year US Residential Real Estate Review

The rare steady “grind” higher in residential real estate is evolving against a backdrop of worry and overbearing caution as the broader economic recovery enters its 10th year. The general narrative increasingly focuses on unaffordability, lack of supply, and impending demographic and industry structural changes…

Measuring Inflation

Political Bias and the Descent of Home Ownership

A scale is a sacred symbol. It represents balance, justice, and accuracy. Over thousands of years, societies have come up with agreed-upon units and measures for concepts as varied as temperature, weight, and space. While economic measures have benefited from the high regard in which society holds balances and measures, economic measures are not like measurements of time or weight. Economic measures are subject to significant judgment, discretion, and errors in methodology…

Home Analytics Part 1: Long Run Returns

In this Home Analytics series, we will develop a toolbox of statistical methods to help analyze the home as a financial asset. We begin by estimating expected risk, returns, and correlation to other asset classes. Later, we will explore applications of our estimates as they related to the financial decisions of households, investors and the public sector…