Research of American Single Family Home Investment and Residential REITs

Housing is one of the largest real estate investment categories in the United States. Single-Family House (SFH) is the most popular house type and single-family rentals have a market value of over $2.3 trillion. We take Case-Shiller Housing Price Index and FTSE/NAREIT Residential REITs Index as indicators to analyze the performances of direct and indirect SFH investments. Compared with S&P 500, we find SFH price has lower volatility, lower return and longer cycle. Both national and 16 metropolitan regions home price show low correlations with S&P 500. We show that a fixed weighted back-testing portfolio of SFH and stock has large decline on standard deviation since 1985, reducing by 50% with similar annual return to a stock portfolio. REITs, as an indirect housing investment vehicle, does not keep pace with house price in short term and shows relatively higher correlation with stocks. And a portfolio with REITs benefits a lot from risk diversification. However, in the US, there is still a lack of Residual REITs product and SFH-targeted REITs index. And investors need more access to housing market and share the gains from house price appreciation and rental yields.