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A home is the most valuable asset for a majority of U.S. residents. Why do we...

A home is the most valuable asset for a majority of U.S. residents. Why do we not see more diversification in real estate ownership against loss of value due to market fluctuations? Historically, we think that Americans overinvest in housing.

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Answer #1

We do not see more diversification in real estate ownership against loss of value due to market fluctuations because -

  • People hold real estate for a long time so the risk of loss is minimized by the length of time they are being held.
  • As the market improves, the value of house also appreciates thus building your equity
  • Real estate gives more control of investment because the property is a tangible asset that can be leveraged to capitalize on numerous revenue streams while enjoying capital appreciation.
  • Real estate will always have a tangible value unlike stocks which can turn to zero if market is not performing well
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