How to Manage Risk and Volatility as a Home Owner

In the U.S., we generally consider homes a bedrock investment. They’re a key anchor of many Americans' financial portfolios and, increasingly, their retirement plans. But is that always wise?

Unison Investment Management previously published a groundbreaking Home Volatility Index (read the executive summary and full white paper), showing that a single home is actually a relatively risky asset – as volatile in value as a stock market index. And most homeowner portfolios are overexposed to residential real estate, thanks in part to historically low interest rates and low down payment requirements.

The index found that the long-run average annualized volatility of home price appreciation has been approximately 15% per year since 2000. Home price volatility spiked to more than 35% per year during the 2008 financial crisis, suggesting that, like equities and fixed-income securities, real estate risk can become even more pronounced in times of economic stress.

New homebuyers are particularly vulnerable to this volatility, since many cash out most or all of their liquid savings to make a down payment.

Does that mean you should sell your house? Or avoid buying altogether?

Absolutely not. At Unison, we’re big believers in the American Dream. But when you think about your home as part of your broader financial picture, it’s important to understand the risks of concentrating your wealth in a single, not-so-liquid asset. Your home is where you live, grow, and build memories – it shouldn't also be where you take excessive financial risk.

Understanding the Sources of Home Price Volatility

Just like stocks, home values are influenced by a range of factors – some you can control, many you can’t. Local job growth, interest rates, housing supply, demographic shifts, and even broader economic policy can all move the needle. While these changes often happen gradually, periods of economic turbulence can trigger sharp, sudden swings in value.

The takeaway? Even if you have no plans to sell in the short term, market volatility can still affect your net worth, your refinancing options, and your flexibility in responding to financial opportunities or challenges.

Ways to Reduce Concentration Risk in Your Home

Owning a home will almost always tie a large portion of your net worth to a single property. But there are steps you can take to keep that from becoming an outsized financial risk.

1. Build and maintain a healthy emergency fund Having cash reserves means you won’t be forced to sell your home or borrow at unfavorable terms during a downturn. Financial planners often suggest 3-6 months’ worth of expenses, but homeowners in more volatile markets may want a larger cushion.

2. Diversify your broader investment portfolio If much of your wealth is already tied up in home equity, consider directing additional savings toward other asset classes like index funds, bonds, or retirement accounts. This way, your net worth isn’t entirely at the mercy of local housing trends.

3. Avoid overleveraging Stretching your budget to buy the most expensive home you can qualify for may leave you vulnerable if prices fall or your income changes. A more conservative purchase can free up capital for other investments and reduce stress during market swings.

4. Keep your home well-maintained Market volatility aside, a home’s condition plays a huge role in its resale value. Regular upkeep and timely repairs help preserve value and prevent minor issues from becoming major, expensive problems.

5. Be strategic about renovations Not all upgrades pay off equally. Focus on projects that both improve your quality of life and have strong resale potential in your local market.

Planning for the Long Term

Volatility becomes less of a threat when you extend your time horizon. Historically, most markets recover from downturns given enough time, so if you can comfortably afford your home and have no urgent need to sell, short-term price fluctuations matter less.

Bottom line? Owning a home is both a lifestyle choice and a financial commitment. By understanding the inherent risks, and taking proactive steps to balance your overall portfolio, you can enjoy the benefits of homeownership without letting volatility dictate your financial future.

This content is provided for general informational and educational purposes only and is not intended to serve as financial, investment, legal, tax, or lending advice. The information presented may not apply to your specific situation, and actual outcomes can vary based on individual circumstances, market conditions, and applicable laws. Home equity sharing agreements and loans involve risks, including the potential loss of future home appreciation or other financial implications. Terms, availability, and eligibility for any products mentioned may differ by state, lender, or other factors. We strongly recommend consulting with a qualified financial advisor, attorney, or licensed professional before making any decisions or entering into agreements. Unison Mortgage Corp. is a licensed lender (NMLS ID 2574289); this article may include promotional content related to its services.