An Analysis of the Relationship Between Housing Common Factors and REIT Returns

This study analyzes the relationship between the housing market and the REITs market. First, we estimated a single-index housing common factor using variables such as the apartment price index, apartment transaction volume, and the number of unsold new apartment. The estimated housing common factor is then compared and analyzed with the REITs portfolio and individual REIT returns. Using the single-index model proposed by Stock and Watson (1991) to analyze the housing common factor, the results showed that the apartment price index and transaction volume variables were estimated as positive (+), while the number of unsold new apartment variable was estimated as negative (-). The results of the Granger Causality analysis indicated that REIT portfolio returns have an impact on the housing common factor. The analysis of the VAR(1) model for the housing common factor and REIT portfolio returns variables showed that REIT portfolio returns have a statistically significant impacton the housing common factor at lagt-1. In conclusion, combining the results of the Granger Causality analysis and the VAR model analysis, it is determined that the returns of the REIT market influence the housing common factor.