Skip to main content

New Report Raises Concern on Housing Market Risk

Jul 15, 2019
Photo credit: Getty Images/marchmeena29

Homeownership might be the American Dream, but a new report is raising a warning that new homebuyers might be putting themselves at exposure to financial risk by expecting too much return on equity from their residences.
 
According to the newly released Unison Home Volatility Index, the long run average annualized volatility of home price appreciation has been approximately 15 percent per year since 2000, which is only one percentage point higher than equity stock indices. The report noted that home volatility spiked to more than 35 percent per year during the midst of the 2008 economic meltdown, which would affirm that the financial risk of residential real estate, not unlike equities and fixed-income securities, is amplified during a financial crisis.
 
“Diversification is the core principle of modern portfolio theory,” said Brodie Gay, vice president of research at San Francisco-based Unison. “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 percent 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.”
 
The Unison report added that new homebuyers are particularly vulnerable because they often cash out their entire liquid portfolios to make a down payment. As a result, a new homebuyer who borrows five to 20 times their net worth runs the risk of losing their entire net worth and becoming insolvent if the economy tanks.
 
Unison CEO Thomas Sponholtz warned that the “proliferation of very low downpayment, 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.”

 
About the author
Published
Jul 15, 2019
FED Cuts Funds Rate By 25 bps

Federal funds rate lowered to a target range of 4.50%-4.75%.

Nov 07, 2024
UWM Profits Decline Sharply In Q3 2024

UWM CEO Ishbia says the declining fair value of MSRs had an impact

Nov 07, 2024
Early Voters Flag U.S. Economy As Top Issue

More Americans think mortgage rates will fall if Trump wins

Nov 04, 2024
Freddie Mac's Q3 Earnings Boost Net Worth To $56 Billion

Lower rates usher in more purchase and refinance activity

Oct 30, 2024
HUD Pledges $12 Million To Boost Housing Affordability

Grant funding from HUD’s Self-Help Homeownership Opportunity Program (SHOP) enables eligible organizations to acquire land, enhance infrastructure, and build housing

Oct 30, 2024
Insurance Crisis Hits Lenders' Bottom Lines

While monthly principal, interest, and property tax obligations are up an average 15-17% since the beginning of 2020, the average monthly property insurance payment is up a staggering 52% over that same period.

Oct 30, 2024