A New Kind of Gold? Investments in Housing Under Economic Uncertainty

Abstract

Since the 1960s, Americans have looked to the stock market for investments. Residential real estate was just a place to live. No more. Much like gold in the 1970s, the purchase of residential real estate now appears to be treated by Americans like the investment of choice in times of economic uncertainty. This paper shows that there are two reasons for this major behavioral change.

First, real estate has become the psychological equivalent of gold, the asset considered most tangible and therefore, rationally or not, the safest. Second, the timing of the shift in real estate investment patterns suggests that the change is a side effect of the stimulative monetary policy used during economic recessions. Reduced interest rates encourage investment in real estate by making it more affordable.

Keywords: Real Estate, Investment Allocation, Property, Economic Uncertainty

JEL Classification: E21, R21, R31