Real estate correlation with stock market

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deanmoriarty
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Joined: Tue Jan 28, 2014 12:19 am

Real estate correlation with stock market

Post by deanmoriarty »

Hello,

I am under the general belief that over the long term (10+ years) housing and stock markets are driven by similar economic forces: demographic, monetary policy, inflation, productivity. As such, they should be generally correlated.

Are there examples of major countries where the non-commercial residential real estate market has been wildly uncorrelated (for better or worse) with the public market of such country for decades? If yes, what were the reasons? And could that be a valuable data point towards diversification (with the understanding that it is obviously much harder to achieve geographical diversification with non-commercial real estate, including REITs, so please just consider this a thought experiment)?

Once again I have no hidden agenda and I’m actually eagerly putting my paycheck savings into this down market these days as opposed to all-time-high real estate, so please do not derail the thread, I am asking this question purely out of genuine curiosity.

Thanks
Topic Author
deanmoriarty
Posts: 546
Joined: Tue Jan 28, 2014 12:19 am

Re: Real estate correlation with stock market

Post by deanmoriarty »

Friendly bump on this one, since I posted it during a long weekend :-)
Gaston
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Re: Real estate correlation with stock market

Post by Gaston »

I do not have a direct answer to your question, but thought I’d mention the following.

In episode #58 of the Rational Reminder podcast, the hosts argue that an exposure to small cap value + bonds matches the factor exposure of REITS, with lower risk and greater returns (if I recall correctly).

Just food for thought if you want to hear a different perspective.
“My opinions are just that - opinions.”
Valuethinker
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Re: Real estate correlation with stock market

Post by Valuethinker »

[duplicate post]
Last edited by Valuethinker on Fri Jul 08, 2022 12:12 pm, edited 1 time in total.
Valuethinker
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Re: Real estate correlation with stock market

Post by Valuethinker »

Valuethinker wrote: Thu Jul 07, 2022 12:56 pm
deanmoriarty wrote: Sun Jul 03, 2022 12:14 pm Hello,

I am under the general belief that over the long term (10+ years) housing and stock markets are driven by similar economic forces: demographic, monetary policy, inflation, productivity. As such, they should be generally correlated.

Are there examples of major countries where the non-commercial residential real estate market has been wildly uncorrelated (for better or worse) with the public market of such country for decades? If yes, what were the reasons?
Actually. Most? The simple reason being that most stock markets are not remotely representative of the underlying economy. The US market is unusually broad and deep in that regard.

If you tracked TIAA RE I expect it would show similar (but lower) returns to the S&P 500 over the very long run.

UK REITs are relatively new (about 2003 from memory) but companies like Land Securities have been around for a very long time. Hammerson. If you track back those share prices (since perhaps the 1950s) you might get a feel (one problem is these are not Total Return indices, generally). I would again expect that in the very long run they have tracked the UK stock market, however.
And could that be a valuable data point towards diversification (with the understanding that it is obviously much harder to achieve geographical diversification with non-commercial real estate, including REITs, so please just consider this a thought experiment)?
"non commercial RE, including REITs"?

- residential RE is probably the single most common asset class. In many countries there isn't really stock market investing, so people with money own rental properties
- non-commercial? A big part of US index was apartments. These are "non commercial". But ofc rental residential is also quite commercial. Or did you mean cellphone towers ie non-traditional assets. The classic assets are Residential, Commercial (offices etc) & Industrial. UK has almost none of the former but plenty of the latter 2 categories.
Once again I have no hidden agenda and I’m actually eagerly putting my paycheck savings into this down market these days as opposed to all-time-high real estate, so please do not derail the thread, I am asking this question purely out of genuine curiosity.

Thanks
Anti Ilmanen's book on investing strategies (ie not the most recent one on investing in a low return world) has a wealth of information on different asset class performance. You might find what you seek in there.

There's also quite a lot of academic research on returns from real estate investing. If you start with Google Scholar, and then work backwards for the Working Papers (the actual academic articles themselves are often quite expensive to buy) or through the authors' personal webpages.
loukycpa
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Re: Real estate correlation with stock market

Post by loukycpa »

Rick Ferri is a respected Boglehead and frequent poster on this site. I know he advocates putting 10% of your equity allocation in REITs. Meaning 10% on top of what is already present in total market index funds.

I believe the rational is that there is a such a substantial amount of privately owned commercial real estate in the US, a US index investor can mirror this by overweighting REITs via this 10% allocation.

https://core-4.com/classic-core-4-portfolio/

I don't do this myself.
"The safe assumption for an investor is that over the next hundred years, the currency is going to zero." - Charlie Munger
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