Presidential Address: Housing Betas

This paper documents new stylized facts about returns and cash flow growth rates on stocks and housing over decade-long holding periods. While cash flow growth rates on the two assets co-move positively, their returns co-move negatively until the Global Financial Crisis and positively thereafter. These facts present a puzzle for representative-agent models that imply positive return comovement for assets with similar cash flows. I consider a heterogeneous-agent model with segmented stock and housing markets connected through credit. News about the aggregate economy generates negative return co-movement. Recent shifts such as wealthier homebuyers and institutional housing purchases reduce the importance of credit and segmentation.