Speculative Returns in the US Residential Housing Market

Speculative Returns in the US Residential Housing Market

Lately my primary struggle seems to be separating the wheat from the chaff for investing assets. Scarcely is there more chaff than in the US residential housing market.

As empiricists we must be vigilant against the sales pitch disguised as generally accepted wisdom. When you buy a home, the conventional wisdom is: “at least you aren’t throwing money away on rent”. That statement ignores many factors, but I’m isolating the speculative capital appreciation component of housing returns in an attempt to answer the question, “Is residential real estate a good investment for the typical individual?” Just because your home is an investment doesn’t make it a good investment.


I simulated 1000 5-year periods that behaved roughly like the period from 1987-2016 from the S&P/Case-Shiller Home Price Indices (Percent Change) available at:

S&P/Case-Shiller 10-City Composite Home Price Index© (SPCS10RSA)

The experiment approximates the returns an average individual can expect to receive. If they happen to live in a hot market or have a reliable source of discounted real estate, fortunes will abound. Though, relying on the returns of a hot market or others' ignorance of …

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