Dynamics between housing and stock markets

Pin Te Lin and Ivelin Stankow from the University of Reading (United Kingdom) analyze the dynamic relationship between real estate and stock markets in nine countries. A positive lead-lag relationship is observed between the stock market and the housing market in most countries, supporting the wealth effect theory.

  • Publication date: 06/04/2025

Pin Te Lin and Ivelin Stankow from the University of Reading (United Kingdom) analyze the dynamic relationship between real estate and stock markets in nine countries from 1870 to 2015, arguing that previous findings have been limited by the inadequate use of price indexes.

Rather than focusing on capital gains, the study uses total return indexes, highlighting that the main motivation for acquiring housing is to hedge against rental risk, and that returns primarily come from rental income.

The results show that, in general, housing and stock markets are segmented, which implies diversification benefits when investing in both. However, there is some nonlinear integration in countries such as Denmark and the United States, likely due to structural differences in their economies.

In line with previous research in advanced economies (e.g., Irandoust, 2020; Kapopoulos and Siokis, 2005; Liow et al., 2019), the study finds support for the wealth effect theory, which holds that rising stock prices lead households to rebalance their portfolios by consuming more or investing more in housing. In Denmark, a bidirectional causal relationship is observed, attributed to the country's high competitiveness and the transparency of its markets.

The study emphasizes the importance of using long-term historical data and appropriate methodologies to better understand the interaction between both markets and suggests implications for investment strategies and public policies.

Lin, P. T., & Stankov, I. (2025). Dynamics Between Housing and Stock Markets: International Evidence over 1870 to 2015. Journal of Real Estate Research, 1–17. https://doi.org/10.1080/08965803.2024.2442226

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