July 13, 2019

Unison Releases Benchmark Volatility Index for Single Family, Owner-Occupied Homes

SAN FRANCISCO — July 15, 2019 — American homes, traditionally the foundation for building wealth and the key anchor of many Americans’ financial portfolios and retirement plans, are in fact as volatile in value as a stock market index, according to the benchmark Unison Home Volatility Index released today. New homeowners are particularly vulnerable to housing market risk, as they typically have the highest proportion of net worth locked in their home and are also the people taking on the most mortgage debt.

The index shows that the long run average annualized volatility of home price appreciation has been approximately 15% per year since 2000 - one percentage point higher than equity stock indices.* Home volatility spiked to more than 35% per year in the heat of the 2008 financial crisis, suggesting that, like equities and fixed-income securities, financial risk of residential real estate is amplified during a financial crisis.

Unison VP of Research Brodie Gay said, “Diversification is the core principle of modern portfolio theory. We spend a lot of time and diligence on portfolio allocations spanning equities, fixed income securities, and alternative investments, but for a typical household, home equity is typically 60% of the total financial portfolio. We believe homes have been left out of financial planning - even though for American homeowners the house is the bulk of their net worth - because we didn’t have a good way to measure risk for this asset. That’s why we set out to build this index.

New home buyers are particularly vulnerable, the index shows, because they often cash out their entire liquid portfolios to make a downpayment — whether 5% or 20%. A new homebuyer who borrows 5 to 20 times their net worth is taking so much risk that they have a realistic chance of losing their entire net worth and becoming insolvent.

“There’s a sharp contrast between the perception of a homeowner’s portfolio volatility and the actual risk when the home is included,” said Unison CEO Thomas Sponholtz. “In fact, when you include the home in the equation, which is what this index enables us to do, you see that the typical volatility is 21% - one point higher than the most aggressive portfolios offered by most financial advisors. The proliferation of very low down-payment, high-leverage mortgages has led to home price risk exposures that are far beyond levels that a homebuyer should be comfortable with. The home is more than a financial asset; it’s where you live with your family, and should not be where you take this level of excessive risk.”

Read the Unison Volatility Index Whitepaper Executive Summary.
Read the full Unison Volatility Index Whitepaper.

*As shown in the Russell 3000 index.