By Abby Woodham
Passive investing is rooted in the efficient-market hypothesis, which questions if active managers are able to consistently generate excess returns over a stated benchmark. Many investors have begun to employ passive strategies in more "efficient" areas of the market, such as U.S. large caps. However, in smaller niches of the market, such as real estate, there is less of a consensus on the active versus passive debate.
The relative merit of active or passive strategies for U.S. real estate is an interesting question that deserves further exploration, especially as passive real estate strategies gain traction. Does the average actively managed real estate fund generate enough excess return to beat low-cost passive options? Have there been any interesting trends in the performance of actively managed real estate funds over the past decade? In a stable to rising-interest-rate environment, is it better to go active or passive?
When we last looked at the U.S. housing market, we observed that median new home sale prices appeared to be stalling out. But what a difference a month makes, as both new data and the revision of data whose collection had been delayed as a consequence of the partial federal government shut down in early October 2013 makes it clear that new life is being breathed into the U.S. housing market.
Our chart below shows the relationship between median new home sale prices and median household income for each month since December 2000.
(click to enlarge)
In this chart, we observe that the second U.S. housing bubble, which first began inflating after July 2012, has resumed inflating after stalling out in the months from July 2013 through September 2013.
The reason why median new home sale prices stalled out during that period has a lot to