by Mike Tubbs, Quantitative Portfolio Analyst, with Lauren Rosales-Shepard, Content Writer
 

House prices have surpassed their previous peak back in June 2022, and the normalization of home price appreciation has continued to outperform many market and expert expectations. Real wage growth has shown a sharp uptick as a result of the Fed moving closer to its target, and we can see that demand remains very strong for housing as vacancy rates remain extremely low. However, rising mortgage rates continue to constrict housing supply. The current supply deficit is continually increasing, and it appears that the impact of higher rate hikes has deterred supply more than demand. Higher financing rates are reducing listings, which enables prices to appreciate despite aggressive monetary policy tightening. 

Read more about each of these factors and their respective impacts on the housing market as 2023 comes to a close <a href="http://contentimages.o-prod.unison.com/pdf/Market_Commentary_Q3_2023_Cover.pdf">here</a>.

2023 Q3 Housing Market Commentary Update

by Mike Tubbs, Quantitative Portfolio Analyst, with Lauren Rosales-Shepard, Content Writer The housing market displays a sharp upward correction from the downturn that began in 2022 Q3. Home prices have thus far outperformed many forecasts and professionals' expectations, and are looking to bounce back to historical norms. Short-run forecasts are therefore optimistic; there are strong signals that home prices already reached their lowest value, post-pandemic, and are on the rise. Housing market efficiency has improved drastically since 2008, and that has pumped the brakes on price declines. Although the current supply deficit is continually increasing despite a growing house-buying population, this mismatch in the U.S. housing market will elevate HPA in the long run. 

To read our more in-depth analysis and see the data, <a href="https://contentimages.o-prod.unison.com/pdf/2023Q2%20Investor%20Newsletter.pdf">access the full report.</a>

Economic Robustness in the Housing Market: Mid-Year Update | Unison Investment Management

by Mike Tubbs, Quantitative Portfolio Analyst, with Lauren Rosales-Shepard, Content Writer

 
 After last year's slump, home prices are on the rise. Some experts had originally suggested we might be in for a reversion similar to the Great Financial Crisis of 2008; however, Unison has instead steadfastly predicted a soft landing. 

 Our recent HPA Report sheds light on the factors that differentiated recent circumstances from those that precipitated the GFC, and also forecasts the trajectory of home prices in the near future. 

 You can read the report <a href="https://contentimages.o-prod.unison.com/pdf/HPA_071223.pdf" download>here</a>.

Home Prices: Soft Landing with Rebound Incoming 

Home Prices: Soft Landing with Rebound Incoming | Unison Investment Management

By Mike Tubbs, Quantitative Portfolio Analyst, with Lauren Rosales-Shepard, Content Writer

 While January was littered with headlines about <a href="https://www.cnbc.com/2023/01/18/tech-layoffs-microsoft-amazon-meta-others-have-cut-more-than-60000.html">technology sector layoffs</a>, the data itself couldn’t be more convincing of the strength of the current labor market in the United States. Nonfarm payroll <a href="https://www.bls.gov/news.release/empsit.nr0.htm">jumped to 517,000 jobs</a>, utterly decimating the <a href="https://www.nbcnews.com/business/business-news/us-added-517000-jobs-january-much-better-187000-expected-rcna68977?s=09">Dow Jones estimate of 187,000</a>, and nearly <a href="https://www.reuters.com/world/us/us-job-growth-accelerates-january-wage-gains-moderate-2023-02-03/">doubling December's 260,000 gains</a> to boot. 



 This increase pushed the unemployment rate down to 3.4%, which is the <a href="https://www.wsj.com/articles/january-jobs-report-unemployment-rate-economy-growth-2023-11675374490">lowest recorded number</a> since May 1969. Other labor market indicators–<a href="https://www.bls.gov/news.release/pdf/empsit.pdf">like participation</a>–were also favorable. 



 The bulk of the labor force gains came in hospitality, <a href="https://www.nytimes.com/live/2023/02/03/business/jobs-report-january-economy">adding 128,000 jobs</a> to the economy, but business and professional services <a href="https://www.businessreport.com/business/us-adds-a-surprisingly-strong-517000-jobs-in-january">also added 82,000 jobs</a>; these categories were followed by <a href="https://www.cnbc.com/2023/02/03/heres-where-the-jobs-are-for-january-2023-in-one-chart.html">government (74,000)</a>, and <a href="https://www.healthcaredive.com/news/healthcare-adds-58k-jobs-in-january-2023/641957/">healthcare (58,000)</a>. 
 

 Despite inflation beginning to show signs of slowing down, earnings growth for private nonfarm payroll employees <a href="https://tradingeconomics.com/united-states/average-hourly-earnings">remains robust at 4.4%</a>. These numbers are in line with most of the postings post-pandemic. 
 

 These postings all align with the Fed’s soft landing of the macroeconomy. The pace of rate hikes is beginning to slow; the <a href="https://www.forbes.com/sites/jonathanponciano/2023/02/01/fed-raises-rates-another-25-basis-points-signals-more-hikes-still-to-come/">most recent hike was 25 bps</a>. With a resilient labor market, the most likely scenario remains no recession, inflation coming down to its target, and slowing rate hikes. Measures of the risk premium are beginning to fall, which leads us to believe the economy is on a path to equilibrium. 



 
 
 
The content on this page provides general consumer information. It is not legal or financial advice. Unison has provided these links for your convenience, but does not endorse and is not responsible for the content, links, privacy policy, or security policy of the other websites.

January Job Report Exceeds Expectations

<img src="https://contentimages.o-prod.unison.com/images/blog/tulane.jpg" style="width: 75%">
 
As the fall semester kicks into gear with COVID-19 still looming, public officials and school administrators continue to be faced with the difficult decision to either open campuses with safety precautions or bring all lessons online. Opening campus can keep the local economy afloat but runs the risk of a viral outbreak, while bringing classes online demands technology upgrades and drastically reduces revenue for both schools and local businesses. The middle ground is not necessarily enticing, as a hybrid learning model with reduced on-campus occupancy could end up hurting both jobs and student experience. Further, there is no guarantee that added safety precautions will work as planned.
 Universities are often the economic hub for the towns they reside in (“college towns”) and surrounding cities, hence the financial ramifications of campus decisions cannot be overstated. Between employment, dining halls and dorms to entertainment spending around campus, no single factor drives college town economies more than the student bodies (pun intended).
 Since home prices are driven by wages and population density, investors can leverage job growth and migration data to help predict Home Price Appreciation (HPA). With 20 million college students in the U.S., the open campus vs. remote classes decision is a high-confidence indicator for where home prices will go in the coming year.
Here, Unison offers a data-driven approach to help assess college towns’ susceptibility to campus closures, highlighting those expected to be the most resilient and at-risk. 
 College Town Investment Returns - A Look Back
 Over the past decade, the presence of a university in an area did not boost home price appreciation. Using home price data from Zillow (see Appendix) and controlling for all other variables, Unison’s analysis found that:
<ol type="1">
 <li>Zip codes with university presence slightly underperformed zip codes without them</li>
 <li>College towns with larger populations experience higher price appreciation</li>
 <li>Rental yield (what landlord receives after expenses, divided by property value) are higher in college towns: 
 <div style="margin-left: 30px">
 a. With higher population 
 b. Where the college is unranked by the Wall Street Journal or the New York Times 
 c. With a public university, as opposed to private
 </div>

 </li>
</ol>
 In the public market, college town housing has similarly underperformed. Annual total returns (price appreciation + dividends) for American Campus Communities (ACC) — the only publicly-listed student housing Real Estate Investment Trust (REIT) — trailed the MSCI U.S. Residential REIT index 9.5% to 11.4% from 2010 to 2019. Student housing had not been a particularly rewarding investment historically, and ACC’s year-to-date decline of ~20% suggests investors are still pessimistic about the future of student housing investments.
 A Formula to Identify Winning College Towns 
 While online classes and closed campuses paint a bleak picture for college towns, avoiding investments in college towns altogether would be far too superficial. A sensible quantitative approach can help investors infer HPA winners and losers with higher confidence.
 The reality is that not all universities can afford to embrace remote learning. Despite “Tuition is rising much faster than inflation!” becoming a cliche, many schools were already in financial trouble before the pandemic. The Financial Fitness Tracker produced by The Hechinger Report shows that enrollment has fallen in roughly half of the 2,662 schools studied, and 30% of all schools brought in less tuition revenue in 2017-2018 than in 2009-2010. Pre-COVID-19, universities were able to make up the tuition decline by offering and profiting from luxurious on-campus amenities from sushi chefs in dining halls to lazy rivers, and increasing dorm prices accordingly. Compared to the public outcry against rising tuition, room and board inflation was rarely protested. 
 Most Resilient College Towns 
 <li>Uptown, New Orleans, LA (Tulane University) </li>
<li>Jacksonville, FL (University of North Florida) </li>
<li>Harlem, New York, NY (Columbia, City College of New York) </li>
<li>Charles Village, Baltimore, MD (Johns Hopkins University) </li>
<li>Spring Valley, Washington, D.C. (American University) </li>
</li>
 Most At-Risk College Towns
 <li>Huntsville, AL (University of Alabama, Huntsville) </li>
<li>Santa Cruz, CA (University of California, Santa Cruz)) </li>
<li>Cookeville, TN (Tennessee Tech University) </li>
<li>Greeley, CO (University of Northern Colorado) </li>
<li>Carbondale, IL (Southern Illinois University) </li>
</li>
 Many schools are still figuring out where they sit on the fully-remote learning versus business-as-usual spectrum, or how long their current reality will last. We can, however, gauge which schools are most at-risk of shuttering altogether by leveraging NYU Professor Scott Galloway’s research, which categorizes universities into four quadrants (Thrive, Survive, Struggle, Challenged) based on value-to-cost and vulnerability scores. Galloway suggests that more vulnerable schools are those that rely heavily on tuition (as opposed to endowment and sponsorships) and on international students, as well as those providing lower value for tuition costs. Value-to-cost is measured by a combination of alumni lifetime earnings, tuition, student experience score, and school ranking/popularity. 

 Expect Urban College Towns to Persevere, Rural Ones to Struggle
 We see that major cities dominate the resilient college town list. Echoing our findings in the Unison Job Resilience Report published in May, this is owing to populous cities having the economic breadth to absorb shocks.
 For example, Boston’s status as an iconic college town may lead one to believe that campus closures would be catastrophic for its economy, but our findings suggest otherwise. In Boston, Baltimore, and Philadelphia, not only can the cities withstand temporary campus closures, the elite universities also have the financial resources to cope with revenue shortfalls. This observation does not diminish the impact of universities on big cities, but rather highlight their cultural influence as opposed to being economic focal points.
Conversely, for at-risk college towns, neither the town nor the schools can afford campus closures. At-risk college towns are either reliant on jobs linked to the universities, or lack the population size to sustain a loss of revenue from student customers. For example, Kent State University’s student body (22,000) rivals the population of Kent itself (29,000). Businesses such as restaurants, coffee shops, and apartments will be hard-pressed to survive if half of their customer base vanishes. The reverberation will be felt throughout the town, and a combination of business consolidation, liquidation, and innovation will be needed before the local economies can reach a “new normal”.
 Home price appreciation is driven by economic activity (e.g., residents’ ability to pay) and population density (e.g., demand for residential units). Both factors are expected to worsen for college towns on our at-risk list as wages and residency deteriorate. COVID-19 poses a conundrum for communities that rely on university jobs and student patrons, as the optimal solutions for student safety and institutional/business solvency contradict. Regardless of college administrators’ decisions for the fall semester and beyond, the future will likely play out much differently for resilient and at-risk towns. 
 Looking forward, constrained supply and healthy demand in the form of population and wage growth may play an outsized role in returns. As enrollment in traditional colleges continues to trend downward and more campuses incorporate remote learning into their models, focusing on attractive neighborhoods where student housing can more flexibly be converted to alternative uses could be a more rewarding strategy for investors. 

 Appendix
Historical Performance by Category
 <img src="https://im-static-assets.s3-us-west-2.amazonaws.com/insights/College+Town+1.JPG" style="width: 50%">
 <img src="https://im-static-assets.s3-us-west-2.amazonaws.com/insights/College+Town+2.JPG" style="width: 50%">
 <img src="https://im-static-assets.s3-us-west-2.amazonaws.com/insights/College+Town+3.JPG" style="width: 50%">
 <img src="https://im-static-assets.s3-us-west-2.amazonaws.com/insights/College+Town+4.JPG" style="width: 50%">

Informational Purposes only: The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained in this blog post constitutes a solicitation, recommendation, endorsement, or offer by Unison or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

 Authors:
 Sam Lin
 Tilek Kombarov
 Sara Levy-Lambert

Back to School: A New Look at College Town Home Price Appreciation

Unison | Investing in College Towns

The same metropolitan allure that once attracted starry-eyed workers to Manhattan, in spite of the high cost of living, is now the force leading some to abandon it. In the age of COVID-19, the perks of a skyline view and easy commute (not to mention the convenience of coming home after late night happy hours) pales in comparison to the potential danger posed by sharing spaces with dozens of strangers. In addition, most white-collar workers have been working from home (WFH) since March, eliminating the need to commute. This has led many real estate investors to ask, will residents flee New York City altogether?
 

 Our data will demonstrate that, while some residents are leaving the city during the pandemic, many families are still staying within commuting distance, demonstrated by a resurgence of interest in homes in the suburban areas just outside New York City. Our analysis of residential real estate metrics during the pandemic suggests that, instead of leaving New York altogether, families are ditching the city for the suburbs. 


 At Unison, we are most interested in the housing market implications of demographic movements. “Rent downtown for fun, buy in the suburbs for family” had long been the standard American dream formula. With the pandemic rapidly changing housing needs, we sought to understand how markets have been impacted in 2020. 

 A recent New York Times article showed that Manhattan neighborhoods with the most resident departures in the wake of the COVID-19 crisis are generally richer, whiter, and had residents who were more likely to walk or bike to work<a href="#_ftn1" name="_ftnref1">[1]</a>. From this, we can infer that residents who departed had the financial security and work flexibility to choose where to live and whether they want to rent or buy their home. 

 Assuming most departed workers will be tele-commuting as long as the stay-at-home orders are in place, but still live within a commutable distance to their former offices, the exodus can be categorized into three main groups:
 <li>Higher-income employees and managers who owned properties in both the city and the suburbs moved from their city apartments to their suburban homes</li>
<li>Early career workers and students who decided to shelter outside the city with family moved back into family-owned homes in the suburbs.</li> 
<li>The vast majority of people in the middle — who moved from a rented city apartment to a new home (newly rented or purchased) in the suburbs, likely nearby. </li>
The first two groups of movers have little effect on property prices, since the suburban homes they’re moving into were already owned and do not result in new transactions. The third group of movers can boost the suburban housing market through new home rentals or purchases. For those who decide to rent in their new suburban home first, some are likely to eventually buy in the same area. Others who’d planned to buy in the suburbs “eventually” may accelerate their plans and buy now. Additionally, an increase in suburban rental occupancy may drive rents higher, attracting investors and shifting the “rent-or-buy” calculus in favor of buying.

 If suburbs are the next big thing, has the buying wave already begun? 
To find out, we divided counties within and surrounding New York City into urban and suburban markets as follows:
 Urban: Bronx, New York County (Manhattan), Queens, Kings County (Brooklyn)
 Suburban:: Nassau county (a portion of Long Island just west of Queens), Suffolk County (Hamptons), Fairfield County (Greenwich, CT), Westchester County (Scarsdale, Bronxville)
<img src="https://contentimages.o-prod.unison.com/images/blog/nyc/map.png" style="width: 50%">
<h2> </h2> 

 Using seasonally-adjusted data from Redfin, we were able to compare market performance trends between the two groups. The three metrics we believe best reflect the health of housing markets are Months of Supply, Days on Market, and Sale-to-Listing ratio. The data for these metrics are frequently-updated, well-understood, and used widely by real estate agents to assess market temperature.

 Using seasonally-adjusted data from Redfin, we were able to compare market performance trends between the two groups. The three metrics we believe best reflect the health of housing markets are Months of Supply, Days on Market, and Sale-to-Listing ratio. The data for these metrics are frequently-updated, well-understood, and used widely by real estate agents to assess market temperature.

 Months of Supply represents the number of active listings in the market divided by the number of monthly transactions. A higher number indicates an abundance of supply and/or low transaction volume.

Since the introduction of the mansion tax hike in July 2019, Manhattan has seen its Months of Supply climb from 30 months in June 2019 to 88 months in February 2020 (Figure 1). Before COVID-19, transactions for high-end properties waned in the wake of the mansion tax, and mega-developments such as Hudson Yards were already exacerbating the oversupply. COVID-19 has worsened the supply glut to an astounding 271 months as of June 2020. This means that, at the current transaction pace, it would take 22 years to work through the available housing inventory, assuming no new listings are brought to the market. Other New York City boroughs have seen more modest upticks in supply since March 2020. The Bronx held steady at nine Months of Supply, Brooklyn increased from 12 to 20 months, and Queens climbed from seven to 14 months (Figure 2).
<img src="https://contentimages.o-prod.unison.com/images/blog/nyc/figure-1.png" style="width: 50%">
<img src="https://contentimages.o-prod.unison.com/images/blog/nyc/figure-2.png" style="width: 50%">
 In contrast, the pandemic has had virtually no impact on Months of Supply in the suburbs. Supply at all four suburban counties held steady between four to six months. Figure 3 illustrates the percentage change in months supply, highlighting the divide between urban and suburban markets. 
<img src="https://contentimages.o-prod.unison.com/images/blog/nyc/figure-3.png" style="width: 50%">
 Days on Market (DOM) measures the total number of days since the property was first listed. This metric is most useful when evaluated for a specific market over time rather than across markets since typical DOM could vary drastically across markets. For example, it takes roughly two months to sell a house in Westchester, but Brooklyn sellers would be happy if they can sell in three. 
 
<img src="https://contentimages.o-prod.unison.com/images/blog/nyc/figure-4.png" style="width: 50%">
 Echoing what we observed with Months of Supply, Manhattan properties take by far the longest time to sell with a median DOM of 199 days, while Brooklyn is a distant second at 102 days. COVID-19 has likely made selling even more difficult in these two urban markets with little urgency from buyers.
 
 The Sale-to-List ratio is calculated as the sale price divided by the final listing price. This ratio helps buyers and sellers get a sense of how to negotiate on pricing. A high ratio suggests a sellers market, where bids exceed the asking price. Note that the ratio can also increase if sellers aggressively discount listing prices to entice bids.
 
 <img src="https://contentimages.o-prod.unison.com/images/blog/nyc/figure-5.png" style="width: 50%">
 <img src="https://contentimages.o-prod.unison.com/images/blog/nyc/figure-6.png" style="width: 50%">
 As shown by the dashed lines in Figure 5, the Sale-to-List ratio has so far been holding steady between 96-98% in 2020 for suburban markets, suggesting these markets are in equilibrium.

 Manhattan and Brooklyn, on the other hand, actually saw transaction prices inch closer to seller expectations. Sellers in the two boroughs received 4% less than asking price (at 96% Sale-to-List) in December 2019. Since then, sellers in Manhattan are now receiving 1.5% over asking price (101.5% Sale-to-List), while Sale-to-List in Brooklyn rose from 95.6% to 97.2%. Since supply remains elevated in these markets and average time to sell has remained steady, we believe the increase in the Sale-to-List ratio is caused by desperate sellers dropping list prices to get the home to sell rather than a recovery in demand.
 
<h3>Market Condition Based on Key Metrics</h3>
 <img src="https://contentimages.o-prod.unison.com/images/blog/nyc/figure-7.png" style="width: 40%">
Takeaway
 Our findings confirm that suburban housing markets are persevering better than their adjacent urban areas. This is corroborated by the price performance of the eight counties included in the analysis.
 <img src="https://contentimages.o-prod.unison.com/images/blog/nyc/figure-8.png" style="width: 50%">
Moving in with your aunt may make for good comedy, but it is not a viable long-term solution for most adults. As social-distancing and remote work increasingly become the everyday norm, we expect an increasing number of city-dwellers to start making their move to the suburbs permanent. 

 So which suburbs offer the best prospects for investors? While Kensington and Montauk are both considered suburbs of New York City, only one of them is an easy commute to Broadway, museums, fine-dining, consulates, and all the other world-class amenities offered by the Big Apple. We believe that while cities are currently out of favor, the entertainment, amenities and convenience that they offer will eventually be back in demand. Suburbs that are within a 1-hour commute from city centers should continue to see healthy demand and price action in the near-term. The stars are aligned for prized suburbs, as a new class of motivated buyers emerge seeking refuge from the city.

<a href="#_ftnref1" name="_ftn1">[1]</a> "The Richest Neighborhoods Emptied Out Most as Coronavirus ...." 15 May. 2020, https://www.nytimes.com/interactive/2020/05/15/upshot/who-left-new-york-coronavirus.html. Accessed 6 Jul. 2020.</a>

 Authors:
 Sam Lin
 Tilek Kombarov
 Sara Levy-Lambert

New York City-Dwellers Set Sights on a New Prized Penthouse: The Suburbs

Unison | NYC vs Suburbs

Phil Suess 

We’re once again approaching fire season in California. While rain in April and May brought a slight reprieve, rainfall was not enough to compensate for one of the driest starts to a year on record. The combination of drought conditions and Covid-19, which makes convening firefighters in large groups challenging, has officials worried, and homeowners questioning how wildfires may affect their home insurance. We've assembled a list of a few common questions to address some of the concerns. 


<h2 class="headline headline--small">Do I need separate insurance for wildfires?</h2> 

The short answer is normally no. While damage caused by fires is covered by most residential hazard insurance policies, it is important to read through your current policy or any new policies you are considering. The chart<a href="#ftn1">[1]</a> below was published by the California Department of Insurance and lists the types of damages typically covered and not covered by a homeowner’s policy. 

<img src="https://contentimages.o-prod.unison.com/images/blog/perils-homeowner-policy.png" style="width: 75%">
<h2> </h2> 

<h2 class="headline headline--small">Can my insurance change if there is a wildfire incident near me?</h2> 

Yes, insurance availability and rates do change over time, so it is important to monitor insurance renewal notices and non-renewal notices. The California Department of Insurance does offer some protection to consumers immediately following wildfires. Currently, regulators can ban insurers from issuing non-renewal notices for one year in zip codes impacted by wildfires. The list of zip codes impacted by wildfire is determined by the Insurance Commissioner based on data provided by the Department of Forestry and Fire Protection. The zip codes protected from insurance non-renewals in 2019 are listed <a href="
http://www.insurance.ca.gov/01-consumers/140-catastrophes/wildfirenonrenewalinfo.cfm">here</a>.
 
 
<h2 class="headline headline--small">Are there different types of insurers?</h2> 

Yes, there are two categories of insurers: admitted and non-admitted insurers. The difference between these categories is based on their status with the state government. All admitted insurers are required to contribute to the state’s guaranty fund and are backed by the state’s guaranty fund. This means that if an admitted insurer becomes insolvent or has more claims than it can afford to pay out, then the guaranty fund will contribute to the shortfall up to specified limits.<a href="#ftn2">[2]</a> 
 
While non-admitted insurer may sound like a negative term, it has more to do with the insurer’s status with the government than its quality of coverage. Non-admitted insurers provide coverage in regions where coverage by admitted insurers is limited. Additionally, non-admitted insurers do not contribute to the state’s guaranty fund and are therefore not backed by the fund in the case of insolvency. While non-admitted insurers do not participate in the guaranty fund, they must set aside significant reserves or obtain re-insurance. 

<h2 class="headline headline--small">
What happens if I cannot find insurance? </h2> 

For individuals unable to obtain coverage from admitted and non-admitted insurers, there is the California Fair Access to Insurance Requirements Plan (FAIR). It is an option of last resort, meaning individuals can only participate in this option after “a diligent effort to obtain coverage in the voluntary market has been made.”<a href="#ftn3">[3]</a> The FAIR Plan is “an insurance pool established to assure the availability of basic property insurance to people who own insurable property in the State of California and who, beyond their control, have been unable to obtain insurance in the voluntary insurance market<a href="#ftn4">[4]</a>.” 
 
The FAIR Plan offers homeowners an insurance option, but it is far from all encompassing. Coverage is limited to $1.5 million for residential properties, only covers damage from fire or lightning, internal explosion, and smoke and requires the homeowner to get a separate difference in condition policy from another insurer to cover the shortfalls of the FAIR Plan<a href="#ftn5">[5]</a>. Additionally, the FAIR Plan will not estimate the amount of necessary coverage for a homeowner. In November 2019, the California Department of Insurance mandated the FAIR Plan to double its maximum coverage to $3 million as of April 1, 2020. The mandate also required the FAIR Plan to introduce comprehensive insurance policy options by June 2020. A comprehensive policy relieves homeowners from having to seek out and purchase multiple policies to cover other hazards such as liability, water damage, and theft. The mandate to offer comprehensive insurance of policies was challenged in the Los Angeles Superior Court, with the court issuing a preliminary injunction as of February 2020<a href="#ftn6">[6]</a>. 

More information on the FAIR plan is available can be found <a href="
https://www.cfpnet.com/">here</a>. 
 
 
<h2 class="headline headline--small">Where can I find information on changes to the homeowner insurance industry?</h2> 

Given the current insurance environment, it is important to stay alert to changes in the industry. There are several interested parties working toward making changes to the current structure. If you’re interested in monitoring which proposals are implemented, check out the California Department of Insurance site <a href="

http://www.insurance.ca.gov/0400-news/0100-press-releases//">here</a>. 

[1]
 The complete report on residential homeowners insurance is available at http://www.insurance.ca.gov/flipbook/residential/.</a> 

[2] More information on Guaranteed Funds is available at http://www.caiga.org/finance.html. </a> 
 
[3] https://www.cfpnet.com/ </a> 
 
[4] IBID </a> 

[5] "Growing need for FAIR Plan leads Insurance Commissioner to ...." http://www.insurance.ca.gov/0400-news/0100-press-releases/2019/release089-19.cfm. Accessed 27 May. 2020. </a> 
 
[6] "Court issues preliminary injunction halting changes to ...." 20 Feb. 2020, https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/court-issues-preliminary-injunction-halting-changes-to-california-s-fair-plan-57180502. Accessed 27 May. 2020. </a>

Common Questions on California Hazard Insurance

Unison | Do I Need Fire Insurance?

Home Co-Investments Can Boost Diversification and Principal Appreciation for Real Estate Investors 

 <img src="https://specials-images.forbesimg.com/imageserve/5f0c98c0147a4f0006753d4b/960x0.jpg?" 

 Summary
<ol type="1">
 <li>Rental yields are sticky, and low-yield markets remain so for long periods </li>
 <li>Single-Family Rental (SFR) REIT portfolios are concentrated in high-yield markets</li>
 <li>Operational efficiency necessitates clustered portfolios for SFR REITs, hindering diversification</li>
 <li>Home co-investments, free from the shackles of yield hurdles and operating margins, offer the opportunity to diversify freely</li>
 <li>Home co-investments offer superior diversification and operational simplicity compared to SFR</li>
 <li>For investors already owning SFR, adding home co-investments can improve diversification and boost capital appreciation</li>

Introduction
 Investors seeking exposure to residential real estate often ask why they should choose a home equity co-investment strategy over Single Family Rentals (SFR). In this article, we will break down the notion of the “one or the other” approach. We believe that a “both” approach offers the most comprehensive exposure to residential real estate — a $160+ trillion asset class and the largest component of GDP and CPI. Here we will compare the different incentives for the two strategies and show the difference in geographic exposure. 
 Rental Yield Investors: Exposure and Return Drivers
 The primary focus as a traditional real estate investor is cashflow, specifically net rental yield. There are generally two types of investments: 
<ol type="1">
 <li>Core Investments. The investor firmly believes that the property will produce stable rent and/or the property value (or rent) will rise substantially</li>
 <li>Value-add Investments. The investor seeks to improve the property in order to extract value from higher rents or sale prices. </li>
 Assuming a traditional (core) buy-and-hold approach, the question becomes, what locations offer the most attractive cash-on-cash yields? 
 For the purpose of this article, we assume our investable universe comprises the top 50 Metropolitan Statistical Areas (MSAs) based on population. Property value and rent data are from Zillow, and our market assumptions are as follows: 
 - Median purchase price and median rent for each MSA 
- 5% vacancy and credit loss 
- 65% operating margin (before management fee) 
- 80% LTV 
- 3.6% interest rate 
- 30-year fixed rate mortgage 
 Note: Interest rates have decreased due to the Fed’s actions in response to the recession caused by COVID-19. Our analysis remains largely unchanged, as lower mortgage cost is offset by lower rents in urban markets and rising property value in suburban markets. We explored COVID-19’s impact on home price appreciation in urban vs suburban markets <a href="https://www.unisonim.com/insights/unison_nyc_suburbs_moving" target="_blank">in a previous post</a>. 
The map below (Figure 1) shows the MSAs with positive rental yields in blue, and ones with negative yields in peach. The size and color of the bubbles correspond to rental yield.
 Figure 1: Top 50 MSAs Estimated Cash-on-Cash Yield <a href="#_ftn1" name="_ftnref1">[1]</a>
<img src="https://contentimages.o-prod.unison.com/images/im/article/sfr/Figure-1.png" style="width: 50%">
<h2> </h2> 

 Out of the 50 metros, 18 have positive yields, and 12 of the 18 yield under 3%. For low-price properties, these yields translate to less than $100 per month cash flow, leaving little room for unexpected costs. The remaining six metros are Pittsburgh, Memphis, Birmingham, Cleveland, Detroit, and Chicago, with yields ranging from 3.3% to 4.5%. Conversely, San Jose and San Francisco have the lowest rental yields. New landlords there can expect “returns” of -11.3% and -11.0%, respectively.
Figure 2 shows the 50 metros ranked by yield. Over the last five years (Figure 3), median yield for the top 50 MSAs decreased from -0.3% to -0.9%. This would indicate that the yield profile of rental properties have become less attractive. However, investors would have fared differently, depending on their entry points. The most opportune time to become a landlord was August 2016, when the median MSA cash-on-cash yield was 2.4%. The worst time to do so was November 2018, when the median MSA yielded -4.1%.
 Figure 2: Top 50 MSAs Estimated Rental Yield (Descending Order)
 
<img src="https://contentimages.o-prod.unison.com/images/im/article/sfr/Figure-2.png" style="width: 50%">
<h2> </h2> 
 Figure 3: Top 50 MSA Estimated Cash-on-Cash Yield (2014-2019)
 
<img src="https://contentimages.o-prod.unison.com/images/im/article/sfr/Figure-3.png" style="width: 50%">
<h2> </h2> 
 One thing to note from the above chart is that 92% of the MSAs in the lowest yield quartile at the beginning of 2014 remained in the bottom quartile as of September 2019. We chose 2014 as the start date to coincide with the public listing of American Homes 4 Rent - the second largest SFR REIT. Conversely, 77% of the MSAs that were in the top quartile at the beginning of 2014 remained so in September 2019. This persistence suggests a structural difference between MSAs located in the top quartile and those in the bottom quartile. Yields are sticky, and cities with prohibitively low yields tend to remain so. This suggests that if investors were to invest on the premise of rental yields, they could be precluded from realizing geographic diversification over extended periods of time, as much of the market, especially in areas where land is scarce (downtown, near public transportation/shops/jobs), has negative rental yields.
Las Vegas, a market that we highlighted in Resilient and Vulnerable Cities: A Guide to Residential Real Estate Investing, is one exception to the yield persistence. Due to the city’s heavy reliance on discretionary goods and services, its housing market is subject to amplified boom and bust cycles that exacerbate macroeconomic trends. In the wake of COVID-19, once foreclosure subsidies wane, Las Vegas is likely to swing from a HPA market into a high-yield rental market. Single-family operator American Homes 4 Rent (AMH) is already seen frontrunning the potential rise in yields with their build-to-rent program in the Spring Valley suburb of Las Vegas.
 Home Co-Investments Provide Diversification with Different Return Drivers 
 A home co-investment is a bet on the price appreciation of home, often via structurally-levered assets such as options contracts. Home co-investors focus their underwriting on property appreciation, which differs fundamentally from traditional yield real estate investors, who focus on rental yield. 
Drivers 
 As shown previously, areas with low rental yields tend to deter yield-centric investors, and it is no accident that these same areas have achieved the highest home price appreciation. Despite obvious diversification benefits, low-yield-high-HPA areas remain out of reach for institutional investors due to the many costs of carry - taxes, CapEx, property management, maintenance, and mortgage. In contrast, cost of carry is a non-issue for home co-investors — since homeowners bear all the costs associated with property ownership and upkeep. Consequently, home co-investments allow investors to build more diversified portfolios without yield and operation constraints. 
 Comparing SFR vs Co-Investments 
 When examining SFR REIT exposure to the top 50 MSAs, one would expect their portfolios to be highly concentrated in high-yield MSAs. After researching the portfolios of the two largest public SFR REITs - American Homes 4 Rent and Invitation Homes (INVH) - this dynamic largely holds true. Roughly 30% of AMH’s portfolio by unit count is in positive-yielding MSAs, while INVH has 45% of their portfolio in those areas. If we were to include those MSAs that have cash-on-cash yields of -3% or higher, in which REITs could opportunistically enhance yields (via discounted purchases, value-add development), those numbers increase to 50% and 62%, respectively. 
 
Figure 4: Geographic Exposure by Investor<a href="#_ftn1" name="_ftnref1">[2]</a> <a href="#_ftn1" name="_ftnref1">[3]</a> <img src="https://contentimages.o-prod.unison.com/images/im/article/sfr/Figure-4.png" style="width: 50%">
<h2> </h2> 
 Relative to American Homes 4 Rent, Invitation Homes has a larger portion of their portfolio in currently negative-yielding areas. However, Invitation Homes began purchasing single family homes at scale in 2012, when a much larger selection of MSAs were yield-positive. It has also been reported that corporate buyers were regular attendees at foreclosure auctions<a href="#_ftn1" name="_ftnref1">[4]</a>, allowing the company to purchase homes at discounted prices. The opportunistic timing likely enabled Invitation Homes to gain exposure to negative-yield areas, but the strategy is no longer replicable. Furthermore, data shows that properties owned by SFR REITs in the negative yield MSAs are located in higher cap rate locations. 
 To illustrate the exposure contrast between SFR REITs and home co-investors, we look to Unison’s portfolio composition. As of Q1 2020, Unison’s exposure to the four lowest-yielding MSAs ——San Jose, San Francisco, Los Angeles, Seattle — stands at 27.4% (41.3% by value). These are some of the most vibrant cities with a world-class combination of transportation, entertainment, cultural, and employment amenities. But due to low yield, SFR investors have been locked out of these markets. REITs and home co-investors take very different paths to achieve total return. Using stocks as an analogy, rental homes offer high dividend yields, while home co-investments offer capital appreciation. We will examine the total return components in more detail in a future piece. 
 Figure 5: Example Co-Investor Portfolio<a href="#_ftn1" name="_ftnref1">[5]</a> <img src=" 
https://contentimages.o-prod.unison.com/images/im/article/sfr/Figure-5.png
" style="width: 50%">
<h2> </h2> 
 Intra-MSA Exposure
 Understanding MSAs are not monoliths, it may be possible for both traditional investors and home co-investors to find investments that suit their objectives within the same MSA. To show how this takes place in practice, we rank zip codes by current cap rates in Atlanta - a city that has positive rental yields based on our calculations in Figure 1 - and examine the intra-MSA exposures between SFR and home co-investments. We used public record data<a href="#_ftn1" name="_ftnref1">[7]</a> to proxy the portfolios of Invitation Homes and American Homes 4 Rent by identifying homes owned by known affiliates of the two REITs, as of December 2019. 
 Figures 6 shows that Unison had invested more heavily in lower cap rate areas than the SFR REITs. The average cap rate for zip codes with Unison investments is 4.1%, compared to 4.9% for INVH and 5.4% for AMH.
 Figure 6: Atlanta Geographic Exposure by Investor<a href="#_ftn1" name="_ftnref1">[8]</a><img src=" https://contentimages.o-prod.unison.com/images/im/article/sfr/Figure-6.png"style="width: 50%">
 Graphically, the contrast in exposures is even more prominent (Figure 7). Unison has a bias for the region spanning from downtown Atlanta to Buckhead/North Atlanta, while the REITs have invested more heavily in East, South, and West Atlanta.
 Figure 7: Atlanta Geographic Exposure by Investor (Mapped)<a href="#_ftn1" name="_ftnref1">[9]</a>
<img src=" https://contentimages.o-prod.unison.com/images/im/article/sfr/Figure-7.png" style="width: 50%">
 Another example to illustrate this point is Seattle, a city that has significantly different cap rates and yield characteristics from Atlanta. Seattle has negative yields for investors based on our calculations. Similar to Atlanta, the results show that Unison’s portfolio covers mostly the lower cap rate areas. The average cap rate for Unison is 2.0%, compared to 2.5% for INVH and 2.6% for AMH.
 Figure 8: Seattle Geographic Exposure by Investor<a href="#_ftn1" name="_ftnref1">[10]</a>
<img src=" 
https://contentimages.o-prod.unison.com/images/im/article/sfr/Figure-8.png
" style="width: 50%">
 Again, we see a clear distinction between portfolio exposures. The SFR REITs are concentrated in South Seattle, while Unison is diversified across the city. As further evidence for the exposure dichotomy, the SFR REITs have zero exposure to zip codes under 2% cap rates.

 Figure 09: Seattle Geographic Exposure by Investor (Mapped)
<img src=" https://contentimages.o-prod.unison.com/images/im/article/sfr/Figure-9.png"style="width: 50%">
 Concentration of Exposure
 Rental investors have to operate and manage the properties. This operational burden necessitates the clustering of properties in order to drive efficiencies through centralized property management and maintenance. Buying properties too far from one another simply results in more driving time for maintenance staff and reduced negotiating leverage with vendors. To test this notion, we calculated the Herfindahl-Hirschman Index (HHI) for each of the SFR REITs and Unison<a href="#_ftn1" name="_ftnref1">[11]</a>. Not surprisingly, the results show that Unison has the lowest HHI score<a href="#_ftn1" name="_ftnref1">[12]</a> at the zip code level, indicating better diversification, despite being invested in far fewer properties. 
<img src=" https://contentimages.o-prod.unison.com/images/im/article/sfr/Figure-10.png"style="width: 50%">
 Conclusion
 Traditional real estate investors and home co-investors have very different objectives and contrasting geographic exposures. Rental real estate investors focus on yield to drive total return, while home co-investors focus on price appreciation. Home co-investors are able to construct more diversified portfolios without the burden of yield hurdles. 
 We showed that over time, low yield markets tend to remain so. From San Francisco, Washington D.C., to New York City, top metros with diverse economies also tend to be the lowest yielding rental markets. This phenomenon precludes rental operators from diversifying into these areas, resulting in biased portfolios akin to baskets of high yield stocks. This trend is prominent not only at the national level, but also holds true within cities, as SFR REITs consistently shun crown jewel neighborhoods where owning is preferred to renting. Operationally, given the burden of operating expenses, rental operators are compelled to concentrate their portfolios in clusters in order to scale efficiently. Combined with the high-yield tilt, SFR REITs essentially construct concentrated high-yield portfolios. 
 In contrast, home co-investments, unshackled by yield hurdles and cash flow margins, allow investors to diversify more freely. Firms like Unison can invest in high growth and high yield areas alike, achieving broader diversification for investors. 
 Home co-investments offer superior geographic diversification and operational simplicity for investors seeking comprehensive exposure to residential real estate. For investors who already own residential real estate, adding exposure to home co-investments can improve geographic diversification and balance their portfolios with more capital appreciation. 

<a href="#_ftnref1" name="_ftn1">[1]</a> Computations based on Zillow’s ZHVI All Homes values and Zillow Observed Rent Index (ZORI) Time Series: Multifamily, SFR, and Condo data as of September 2019. Assumptions are 20% down, 3.6% interest rate, 30 yr fixed rate mortgage, 5% vacancy & credit loss, and 65% NOI margin on the effective gross income.</a>
<a href="#_ftnref1" name="_ftn1">[2]</a> Information taken from INVH Q3 2019 10-Q, AMH Q3 2019 10-Q, CoreLogic, and Unison. INVH Q3 2019 10-Q notes "South Florida" includes Miami-Fort Lauderdale-West Palm Beach, FL, and Port St. Lucie, FL, "Northern California" includes Sacramento-Arden-Arcade-Roseville, CA, San Francisco-Oakland-Hayward, CA, Stockton-Lodi, CA, Vallejo-Fairfield, CA, and Yuba City, CA, "Southern California" includes Los Angeles-Long Beach-Anaheim, CA, Oxnard-Thousand Oaks-Ventura, CA, Riverside-San Bernardino-Ontario, CA, and San Diego-Carlsbad, CA, "Other Areas" includes those cities/regions that were undisclosed in the AMH Q3 2019 10-Q and areas outside of the top 50 MSAs for INVH and Unison. INVH Q3 2019 10-Q noted 4,686 properties in the Carolinas region. Estimated Charlotte and Raleigh property count based on data queried from CoreLogic for known subsidiaries. Other properties not allocated to Charlotte or Raleigh were attributed to "Other".</a>
<a href="#_ftnref1" name="_ftn1">[3]</a> Unison does not currently operate in Texas</a>
<a href="#_ftnref1" name="_ftn1">[4]</a> "Blackstone takes its single-family rental bet public as sector ...." 1 Feb. 2017, https://www.cnbc.com/2017/02/01/blackstone-takes-its-single-family-rental-bet-public-as-sector-soars.html. Accessed 4 Mar. 2020.</a>
<a href="#_ftnref1" name="_ftn1">[5]</a> Unison portfolio as of 5/31/2020</a>
<a href="#_ftnref1" name="_ftn1">[6]</a> Cap rate defined as median rent less 5% vacancy and credit loss adjustment, with 65% NOI margin, divided by median value of homes in the zip code. Rent and home price data for all zip codes from Zillow.</a>
<a href="#_ftnref1" name="_ftn1">[6]</a> Via CoreLogic</a>
<a href="#_ftnref1" name="_ftn1">[8]</a> INVH & AMH data taken from CoreLogic data in December 2019. Unison data is as of 09/30/2019. Zip codes were limited to those available through Zillow data for the city of Atlanta.</a>
<a href="#_ftnref1" name="_ftn1">[9]</a> INVH & AMH data taken from CoreLogic databases in December 2019. Unison data is as of 09/30/2019</a>
<a href="#_ftnref1" name="_ftn1">[10]</a> INVH & AMH data taken from CoreLogic databases in December 2019. Unison data as of 09/30/2019. Zip codes were limited to those available through Zillow data for the city of Seattle.</a>
<a href="#_ftnref1" name="_ftn1">[11]</a> INVH & AMH data taken from CoreLogic databases in December 2019. Unison data as of 09/30/2019.</a>
<a href="#_ftnref1" name="_ftn1">[12]</a> # Properties Reported” are the number of properties that AMH and INVH reported in their Q3 2019 10-Q. “# Properties Tested” includes all of the properties owned by known affiliates of AMH and INVH found in the CoreLogic database, used to conduct the HHI test.</a>

Informational Purposes only: The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained in this blog post constitutes a solicitation, recommendation, endorsement, or offer by Unison or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

 Authors:
 Sam Lin
 Jonathan Schwerin

SFR REIT's & Unison: A Real Estate Super Investment

Unison | SFR REIT's: A Real Estate Super Investment

Brian Tesch and Harrison Tateosian 

The recent eruption of the Coronavirus (COVID-19) onto the world stage has brought about significant turmoil within financial markets, as well as other asset classes traditionally deemed to be non-correlated. While the effects on financial markets are felt almost immediately, the impact can be muted when examining the performance of residential real estate over a similar timeframe. Residential real estate can provide a repository of shelter for investors due to the low correlation exhibited by this asset class, especially during market corrections when the general level of correlation between asset classes rises. Exploring this idea, Unison has examined four historical scenarios when there was significant market disruption to gauge the impact that those events had on residential real estate at the time and to offer as a roadmap for the current crisis. 

Four periods were chosen that contain significant market dislocation over the past four decades, ranging from the culmination of the Vietnam War and the Oil Crisis, Black Monday and the Iraqi invasion of Kuwait, the Dot-com Bubble, and the Great Financial Crisis of 2008. Each of these market dislocation events occured at significant points of economic and social impact. Much like those events, the ramifications from COVID-19 on present day society will have meaningful and lasting impacts. 

To test these relationships, national home sales data was used to compute an aggregate value for the median home sale price along with the home sales values of the 25th and 75th percentiles. These values are not measured through sales pairs but are instead the ordinal values of those respective percentiles. The home sales metrics were then compared to the performance of the S&P 500, a proxy for the performance of public equities. These two metrics were then indexed to provide an accurate view of the relative performance of each asset across the historical timeframes. 

<h2>Historical Scenarios</h2>
<h3>End of the Vietnam War and the Oil Crisis</h3>
The 1970’s were highlighted by the ending of the Vietnam War in 1975, a period that coincided with the Oil Crisis from 1973-1975, and the abandonment of the Bretton Woods System. This period was also punctuated by the first bout of stagflation, high rates of inflation coupled with low economic growth. All of these events rippled through financial markets with the biggest drawdown in public markets occurring from 1973-1975. While the decade resulted in a greater than 40% return for the S&P 500, this return was achieved within the first 18 months of the decade. Residential real estate on the other hand, continued to perform in a stable and consistent manner throughout the decade as seen in Figure 1. As denoted by a correlation of just 0.06, each of the major political and economic events from above appeared to have little material effect on residential home prices during the decade. 

<h6>Figure 1</h6>
<img src="https://im-static-assets.s3-us-west-2.amazonaws.com/insights/Historic+Turmoil+and+US+Residential+Real+Estate+Performance+Figure+1.png">
Percentiles consolidated from the 2018 CoreLogic, Inc OLB Database. Monthly S&P 500 is the average of all weekday market close values inside each month. 
<h3>Black Monday and the Invasion of Kuwait</h3>
Figure 2 follows the performance of the S&P 500 and the aggregate home sales percentiles from 1987-1991. This timespan covers both the 1987 crash as well as the Iraqi invasion of Kuwait in 1990. Not to be confused with Black Tuesday, the focal point of the 1929 Market Crash, Black Monday in 1987 resulted in a loss of nearly one-third of the value in the S&P 500. During this four-year period, the S&P 500 climbed nearly 35%, although also experiencing multiple drawdowns of greater than 15%. While residential real estate did not perform as well as the S&P 500, it also featured significantly lower levels of volatility. More importantly, during periods of the greatest drawdown, residential real estate experienced only minor depreciation, exemplifying residential real estate as a source of stability within a portfolio. This period saw a slightly increased level of correlation (0.26 vs 0.06) than the 70s. This is likely due to the impact these events had on mortgage interest rates. 

<h6>Figure 2</h6>
<img src="https://im-static-assets.s3-us-west-2.amazonaws.com/insights/Historic+Turmoil+and+US+Residential+Real+Estate+Performance+Figure+2.png">
Percentiles consolidated from the 2018 CoreLogic, Inc OLB Database. Monthly S&P 500 is the average of all weekday market close values inside each month. 
<h3>The Dot-Com Bubble</h3>
The late 1990’s culminated in the Dot-Com Bubble and subsequent bust. Throughout the late 1990’s and early 2000’s, public markets experienced high levels of volatility as the excess of the bubble was dissipated. However, the effect of this decline and subsequent volatility had a muted effect on residential real estate. Until 2005, real estate prices continued to perform exceptionally well relative to public equities as seen in Figure 3. Even after topping in 2005, the magnitude of drawdown in the home price index was significantly less than that experienced by public markets only a few years prior. While this boom could be partly placed on the mass loosening of financial standards for real estate transactions during this period, residential real estate performed as an ideal non-correlated asset to public markets as there was minimal fallout experienced from the drawdown in public markets. 

<h6>Figure 3</h6>
<img src="https://im-static-assets.s3-us-west-2.amazonaws.com/insights/Historic+Turmoil+and+US+Residential+Real+Estate+Performance+Figure+3.png">
Percentiles consolidated from the 2018 CoreLogic, Inc OLB Database. Monthly S&P 500 is the average of all weekday market close values inside each month. 
<h3>Great Financial Crisis</h3>
The Financial Crisis of 2008 was the product of the bursting of the housing market bubble and the loose financial standards that had accompanied it. Figure 4 shows that unlike the prior historical examples, both residential real estate and public markets experienced significant drawdowns. However, even during the decline, the level of volatility exhibited by residential real estate was much lower than that of the S&P 500. Despite public equities recovering their previous highs at a much faster pace than real estate, a potential investor would have been required to undergo a significantly higher level of volatility than an investor holding residential real estate. This lower level of volatility becomes even more remarkable when factoring in that residential real estate was the source of the decline. With the denoted correlation of 0.61 this time period is relatively unique in that it saw the highest correlation between the S&P 500 and Real Estate Sale percentiles in history. 

<h6>Figure 4</h6>
<img src="https://im-static-assets.s3-us-west-2.amazonaws.com/insights/Historic+Turmoil+and+US+Residential+Real+Estate+Performance+Figure+4.png">
Percentiles consolidated from the 2018 CoreLogic, Inc OLB Database. Monthly S&P 500 is the average of all weekday market close values inside each month. 
<h3>The Current Environment</h3>
Following the Financial Crisis, performance of both public equities and residential real estate has been robust. Both assets have been increasing in near lockstep, yet the distinctions in volatility remain. Similar to prior periods, the level of volatility experienced by residential real estate remains well below that of public equities. Public equities experienced a near one-fifth drop in value in the latter months of 2018, however, real estate prices were nearly unchanged during this period. 

Unprecedented government support has been unleashed following the widespread impact of COVID-19 across the world. As public equities have dramatically fallen, the United States Government and Federal Reserve have taken steps to limit the fallout on the surrounding economy and financial wellbeing of consumers. For example, landlords and mortgage servicers have been told to abstain from conducting any evictions and foreclosure proceedings<a href="#ftn1">[1]</a>. In addition, fiscal stimulus currently being discussed by the government could help to further curtail the impact on individual households. 


<h6>Figure 5</h6>
<img src="https://im-static-assets.s3-us-west-2.amazonaws.com/insights/Historic+Turmoil+and+US+Residential+Real+Estate+Performance+Figure+5.png">
Percentiles consolidated from the 2018 CoreLogic, Inc OLB Database. Monthly S&P 500 is the average of all weekday market close values inside each month. 

The impact that COVID-19 will have on residential real estate is not yet known. Unlike the Financial Crisis, residential real estate is being actively supported by the government almost immediately, along with the scale of support reaching a significantly higher level than seen before. Based on historical context, residential real estate is likely to exhibit much lower levels of volatility than what has already been experienced by public equities. While home turnover volume may be impacted in the near term, it will likely take a longer and more protracted economic crisis event to impact real estate prices. During these uncertain times, residential real estate can provide the ideal safe haven of lower volatility without having to materially sacrifice the potential for performance. 

[1]Payment Relief actions by government and GSE’s https://www.bankrate.com/mortgages/programs-to-freeze-foreclosures-evictions-from-coronavirus-disruptions/

Historic Turmoil and US Residential Real Estate Performance

Brodie Gay and Scott Thompson
<h3>Yield Curve Inversion is a Bad Omen for the Economy</h3>
The shape of the yield curve is getting a lot of attention at the moment given that an inverted curve has preceded every US recession over the last 60 years. Beyond the ominous empirical track record, yield curve inversion is concerning for fundamental reasons. Long-term rates are guided by long-run expectations of the nominal growth rate (real growth plus inflation) of the US economy. When short-term interest rates exceed long-term rates, this suggests an investor would benefit from saving as opposed to investing in the economy. Increases in saving come at the cost of decreases in spending and investment, slowing economic growth. 
<h6>Figure 1: The slope<a href="#_ftn1" name="_ftnref1">[1]</a> of the yield curve and recessions (1962 – 2018)</h6>
<img src="https://contentimages.o-prod.unison.com/images/im/insights/Figure-1a-Yield-Curve.png" alt="">
<h3>Homes and Stocks Behave Differently</h3>
An inverted yield curve is a negative indicator for stock returns, prompting risk aversion among market participants. As shown in the chart below, stocks perform poorly in environments of inverted yield curves. Housing on the other hand has not demonstrated a statistically significant relationship between the slope of the yield curve and returns. If anything, housing has tended to outperform when the curve has been inverted. 
<h6 class="mt-2">Figure 2: The relationship between average returns and the slope of the yield curve (1962 – 2018)</h6>
<img class="aligncenter wp-image-669 size-full" src="https://contentimages.o-prod.unison.com/images/im/insights/Figure-2-Yield-Curve.png" alt="" width="1608" height="920">
There are multiple reasons to expect housing to be less susceptible to yield curve inversions than equities. The cost of borrowing for equity investors (e.g. margin rates or the pricing of futures contracts) is tied to short-term rates, whereas mortgage rates for housing are driven by 7-10 Year Treasury yields. Additionally, demand for homes depends on individual households and prospective homebuyers, whereas equity markets are driven (primarily) by institutional capital. Such institutional investors are inherently more motivated by financial market conditions than individual households and home buyers. Turning to supply, new home construction depends on relatively short-term financing and homebuilder sentiment. Yield curve inversion, with its associated elevation in short-term rates and weakening sentiment, constrains new home supply. 
Looking at performance in recessions shows an analogous result to performance during yield curve inversions. Housing tends to be resilient. While home prices declined significantly during the global financial crisis, this was a historical outlier. Housing has rarely been at the epicenter of recessions and is anchored by people’s fundamental need for shelter. 
<h6>Figure 3: Home and stock price indices perform differently during recessions</h6>
<img src="https://contentimages.o-prod.unison.com/images/im/insights/Figure-3-Yield-Curve.png"><img src="https://contentimages.o-prod.unison.com/images/im/insights/Table-1a-Yield-Curve.png">
<h3>Final Thoughts</h3>
An inverted yield curve is a strong recession indicator and tends to coincide with weak stock market performance. Home prices on the other hand have tended to be resilient and a source of shelter for investors when the yield curve is inverted or the economy is in recession. 


[1] Slope is defined as the difference in yield between 10 Year versus 3 Month Treasuries. While the spread between many different points on the curve can be considered, the 10 Year versus 3 Month spread has historically proven the best in terms of its power to predict future recessions. See San Francisco Federal Reserve “Did the Yield Curve Flip? Will the Economy Dip?” <a href="https://www.frbsf.org/our-district/about/sf-fed-blog/did-yield-curve-flip-will-economy-dip/" target="_blank">https://www.frbsf.org/our-district/about/sf-fed-blog/did-yield-curve-flip-will-economy-dip/</a>

The Shape of the Yield Curve and Home Price Returns

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 wise? 

Today <a href="http://unisonim.com" target="_blank">Unison Investment Management</a> published a groundbreaking Home Volatility Index (read the 
<a href="https://contentimages.o-prod.unison.com/images/downloads/Volatility_Index_Short_Paper_final.pdf" target="_blank">executive summary</a> and <a href="https://contentimages.o-prod.unison.com/images/im/downloads/Home-Price-Return-and-Volatility-Indices-1.pdf" target="_blank">full white paper</a>), showing that a single home is actually a pretty risky asset - as volatile in value as a stock market index. And homeowner portfolios have exposure to the risk of residential real estate far beyond what’s optimum - due to the combination of low interest rates and very low- downpayment mortgages. 

 <img src="https://contentimages.o-prod.unison.com/images/blog/2019-Volatility-Index4.png" alt="Unison 2019 Volatilty Index">

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. 

New home buyers are particularly vulnerable to this risk, the index shows, because they often cash out their entire liquid portfolios to make a down payment. 

Does this mean you shouldn’t buy a house - or should sell the one you own? No, absolutely not. At Unison, we’re big believers in the American Dream. 

It does mean that when you’re thinking about buying and owning a home as part of your financial portfolio, you should be aware of the risk of having your wealth over-concentrated in a single asset. And a home is not just an asset - it’s where you live with your family. And it shouldn’t be where you take excessive risk. 

That’s why we think home co-investment is the new normal. 

Unison connects aspiring homebuyers and existing homeowners with institutional investors who offer debt-free access to cash for the chance to share in a home’s appreciation. Our <a href="https://www.unison.com/how_it_works_homeowner" target="_blank">HomeOwner program </a> allows homeowners to unlock equity in their home to pay off debt, remodel or fund a major purchase. Both programs give you a steady partner, and reduce the amount of capital you have tied up in your home. 

This isn’t a loan, which means there are no monthly payments and no interest. If the home depreciates, then Unison shares in the loss. 

Owning a home is still a smart investment. But putting all your eggs in one basket isn’t a smart strategy.

Insights Article

Rayan Rafay and Scott Thompson

<h3>SUMMARY</h3>

<ul>
 <li>Residential real estate is the largest asset class in the world, with a value of $162TRN, and offers strong diversification benefits given its correlation to equities and fixed income of only 0.25 and -0.18, respectively.</li>
 <li>Housing is the largest component of CPI, representing 42% and accounting for more than food, transportation, education, and clothing combined—this makes it an invaluable hedge asset for investors with inflation-exposed liabilities.</li>
 <li>Institutional investors are increasingly using Home Ownership Investments to enable investment in residential real estate.</li>
 <li>Home Ownership Investments are equity investments in individual homes made alongside the owner—they provide an efficient and scalable way to access a diversified housing portfolio.</li>
 <li>Unlike other inflation hedges, such as TIPS, the return potential of these investments is in line with many institutional investors’ nominal and real return objectives.</li>
</ul>

<h3>INTRODUCTION</h3>

Institutional asset allocators are balancing competing portfolio objectives in a challenging environment. Low capital market return forecasts are consensus, while return targets remain high. This combination necessitates allocations to asset classes with higher return potential. However, increasing such allocations often runs counter to the need for diversification. 

In addition, looking at nominal return potential is often insufficient. Many investors also need to hedge inflation. Finally, fiduciaries are under pressure to extract fee transparency from asset managers, despite asset classes with higher return potential often having opaque fee structures. 

Against this backdrop, we believe residential real estate and Home Ownership Investments can play a key role in helping institutional investors balance these priorities. 

<h3>DIVERSIFICATION AND INFLATION-HEDGING POTENTIAL OF RESIDENTIAL REAL ESTATE</h3>

Residential real estate as an asset class offers attractive diversification and inflation-hedging potential. A core tenet of portfolio construction is ensuring an economically representative asset allocation. Residential real estate is the largest asset class in the world, with a total value of $162TRN<a href="#ftn1">[1]</a>. This compares with $102TRN for fixed income (the second largest). In the US alone, the market value of housing represents $27TRN<a href="#ftn2">[2]</a>. From an economic output perspective, housing is the largest component of GDP (for this discussion, we are considering US GDP) at approximately 18%<a href="#ftn3">[3]</a>. In addition, US residential real estate has demonstrated low correlations to both equities (0.25) and long-duration fixed income (-0.18)<a href="#ftn4">[4]</a>. The average asset allocation for institutional investors demonstrates that these are two key risk factors. Residential real estate is, accordingly, a valuable potential diversifier. 
<img src="https://im-static-assets.s3-us-west-2.amazonaws.com/insights/An+Asset+Class+that+Deserves+a+Home+Fig+1.png" style="width:1000px;">

In terms of inflation, residential real estate is one of the most attractive structural hedges available. Housing is the largest component of CPI and accounts for more than food, transportation, education, and clothing combined. 

Inflation is a core risk for many investors. The defined benefit payments made by plan sponsors who provide COLAs (cost of living adjustments) rise with inflation, while defined benefit plan sponsors with active members are typically exposed to changes in salaries, which can also rise with inflation. Accordingly, whether explicitly identified or not, inflation is a core risk factor to be accounted for in a liability-driven investment framework. Building a hedging portfolio to match the duration and curve risk of forecasted nominal liabilities is insufficient. 

Turning to endowments and foundations, CIOs typically have inflation as a structural component of their return target (e.g., CPI+5%). In parallel, they often have preserving real value as a formal objective. From a liability perspective, foundation grants and university operating expenses grow with inflation. 

Family office CIOs typically have a mandate to preserve and grow intergenerational wealth. Doing so solely in nominal dollar terms is clearly not sufficient. Wealth for the purposes of this mandate must be defined as real purchasing power. 
<img src="https://im-static-assets.s3-us-west-2.amazonaws.com/insights/An+Asset+Class+that+Deserves+a+Home+Fig+2.png" style="width:1000px;">

<h3>INVESTING IN RESIDENTIAL REAL ESTATE</h3>

Getting exposure to this asset class is challenging. Mortgages come with interest rate duration and negative convexity (with respect to both interest rates and home prices). Their limited exposure to the appreciation of underlying homes limits their ability to act as a credible inflation hedge. 

Another alternative is public or private real estate investment trusts (REITs). However, these are heavily biased towards multi-family properties and are concentrated in specific areas of the United States. Even across different cities, they often focus on the same types of neighborhoods. While the single-family REIT sector is growing, it faces the key challenge of needing to manage, maintain, lease, and potentially evict tenants from individual homes. Fulfilling these duties is inherently more efficient when dealing with a few large multi-family properties, as opposed to many individual homes. 

The nature of the homes themselves is also a limitation of single-family REITs. These REITs are restricted to rental properties and will not have exposure to higher-value homes and neighborhoods that are typically owner-occupied. 

Additionally, public REITs represent an immaterial share of overall housing. Even residential REITs broadly are less than 1% of the size of the US Housing stock. This further illustrates the enormity of the residential real estate asset class, which also dwarfs other public REIT sectors. 

<img src="https://im-static-assets.s3-us-west-2.amazonaws.com/insights/An+Asset+Class+that+Deserves+a+Home+Fig+3.png" style="width:1000px;">

Finally, risk management is a challenge for investors in both public and private REITs, but for different reasons. Public REITs, by virtue of being listed equities, trade with substantial equity beta. While they tend to perform similarly to private real estate over the long run, near-term swings with a high correlation to equity markets are undesirable for any investor. Private REITs, on the other hand, exhibit very low volatility. This is driven in large part by the infrequency or poor quality of valuation of the underlying properties.

<h3>HOME OWNERSHIP INVESTMENTS</h3>

Institutional asset allocators are increasingly using Home Ownership Investments to access residential real estate as an asset class. These equity investments in individual properties are made alongside the homeowner. Existing homeowners can utilize them to realize a portion of their equity without adding debt. For homebuyers, they provide a contribution towards the down payment on a home purchase. In exchange for their investment in a property, the investor shares in the change in value when the property is sold, or when the homeowner buys out the contract. 

<img src="https://im-static-assets.s3-us-west-2.amazonaws.com/insights/An+Asset+Class+that+Deserves+a+Home+Fig+4.png" style="width:1000px;">

This share in the home value change is typically a multiple of 3 to 4 times the capital invested. An example of such an investment contract is illustrated below.

<img src="https://im-static-assets.s3-us-west-2.amazonaws.com/insights/An+Asset+Class+that+Deserves+a+Home+Fig+5.png" style="width:1000px;">

This 3 to 4 times exposure to home value changes produces a key feature of these investments: they provide efficient structural leverage to home price appreciation. Given the importance of housing in the inflation basket, this makes Home Ownership Investments an invaluable inflation hedge. 

Additionally, the loss to an investor is limited to the initial contribution ($100,000 in the above example). With unlimited upside exposure to housing and restricted downside, these investments effectively represent call options on house prices. 

The nature of Home Ownership Investments also makes them scalable. Homeowners themselves are responsible for taking care of the properties. Investors can thus build a portfolio of high-quality homes diversified across geographies, without needing to worry about property management and taxes, tenants, maintenance, evictions, etc. This contrasts with the challenges facing single-family REITs. 

For homeowners, these investments are not debt, so do not carry interest and principal payments. They can empower homeowners to optimize their personal financial situations. Homeowners typically have an outsized share of their net worth exposed to the idiosyncratic risk of their individual homes. While the US housing market as a whole has exhibited volatility of under 3%, individual homes show volatility of over 12%. This substantial reduction in volatility is analogous to what one sees when going from holding a single stock to investing in a broad index.

<img src="https://im-static-assets.s3-us-west-2.amazonaws.com/insights/An+Asset+Class+that+Deserves+a+Home+Fig+6.png" style="width:1000px;">

Home Ownership Investments allow home buyers and owners to reduce their exposure to this property-specific risk. Institutional owners of Home Ownership Investments on the other hand can own a broadly diversified portfolio of these individual investments, mitigating the idiosyncratic risk associated with individual houses. By allocating risk more efficiently and reducing systemwide debt, the growth of Home Ownership Investments can play a key role in helping delever the home financing industry. 

This reallocation of risk is just one example of the alignment of interests between home ownership investors and individual homeowners. Both win and lose together as equity owners in the home. The homeowner remains incentivized to maximize the value of the property. Also, the manager of Home Ownership Investments is in a unique position to help homeowners when times get tough. In a foreclosure situation, the lender has no incentive to maximize sales price beyond the debt on the property. When the homeowner faces foreclosure, the manager of a home ownership investment can step in to reinstate the mortgage temporarily and allow for an orderly sale that maximizes the value of the homeowners’ equity and the home ownership investment. 

From a return potential perspective, Home Ownership Investments can fit squarely with the return targets sought by many institutional investors. Returns on Home Ownership Investments net of fees may be approximated as just over 2x house price appreciation<a href="#ftn5">[5]</a>. Combining this with long-run forecasts for US house price appreciation results in a return estimate in line with the 7-8% target for many institutional portfolios. 

<img src="https://im-static-assets.s3-us-west-2.amazonaws.com/insights/An+Asset+Class+that+Deserves+a+Home+Fig+7.png" style="width:1000px;">

In addition, while Home Ownership Investments do not generate rental income, this does not mean they do not provide cash flow. Cash flows are generated as individual homes are sold and agreements are bought out by homeowners. At the level of an overall portfolio, cash flows from this turnover can be forecast with surprising accuracy. 

Finally, fiduciaries are scrutinizing the fees of different investment structures. Recent lawsuits have made them hypersensitive on this topic<a href="#ftn6">[6]</a>, and rightfully so. All-in fees for private real estate strategies have been estimated as high as 8%<a href="#ftn7">[7]</a>. Compared to other private investment funds, Home Ownership Investment strategies may provide numerous benefits; for example, they avoid property management, leasing, and debt issuance fees. However, the level of fee transparency and availability of investor-friendly structures (e.g., only charging fees on called as opposed to committed capital, providing expense rebates, etc.) comes down to the individual manager. 

<h3>FINAL THOUGHTS</h3>

Representing the largest asset class in the world and the largest individual component of US GDP, residential real estate deserves a key role in institutional asset allocations. Its correlation structure may help diversify the traditional equity and fixed income betas that form the bedrock of most portfolio risk factor profiles. Additionally, housing is a structural component of inflation. It represents over two-fifths of CPI, making it an invaluable inflation hedge for a wide range of institutional investors, especially those with inflation exposure in their liabilities. 

Finally, Home Ownership Investments are efficient and scalable tools to get exposure to residential real estate, and they are gaining interest among institutional investors. The return potential of these investments can be directly in line with many investors’ targets, while at the same time providing structurally leveraged inflation-hedging potential. In summary, residential real estate accessed through Home Ownership Investments deserves a home in many strategic asset allocations. 

[1]$162 trillion value sourced from Value Walk and Bloomberg

[2] Fed Flow of Funds and Urban Institute, Q2 2018

[3] 18% of GDP sourced from BEA

[4] Correlations calculated using data from Bloomberg (date range: 2007 – 2017)

[5] While leverage may initially be 3-4x, representing the investor’s share of the home value change, like any call option, the leverage declines over time as the underlying asset (the home) appreciates.

[6] Notable lawsuits involve Anthem Inc, TIAA, CVS, Eli Lilly, Novo Nordisk and Sanofi-Aventis.

[7] https://www.forbes.com/sites/edwardsiedle/2016/06/16/pensions-unaware-hidden-real-estate-fund-fees-dwarf-disclosed-fees/#3148d76b1961&nbsp

An Asset Class that Deserves a Home: Residential Real Estate

Residential+Real+Estate+within+an+LDI+Approach+to+Investing

Residential Real Estate within an LDI Approach to Investing 

Home Analytics Part 1: Long Run Returns

Andrew Toby CFA – Director, Investment Operations 

<h2>The Unison Solution – Vol. 1</h2>
<h3>Are your nest eggs all in one basket? Managing concentration risk in personal wealth</h3>
In this series of blog posts entitled “The Unison Solution,” we aim to provide objective analysis of the various use cases of the Unison program offering. In this inaugural post, we will explore the use of Unison HomeBuyer by a consumer who can afford a 20% down payment but chooses to use Unison to create a more diversified personal investment portfolio. 

The “optimal” investment portfolio for an individual will be dependent on a multitude of factors, such as the person’s age, salary, liquidity needs, specific financial goals, and risk tolerance. These unique, individual circumstances should dictate the asset allocation that will create an effective long-term plan for personal wealth management. 

Modern Portfolio Theory teaches us that, for any given level of risk, there is an optimal mix of investment assets that will provide the highest return. However, the practical application of this for an individual can be difficult simply due to the inability to diversify. Moreover, the benefits of homeownership sought by an individual may result in an overallocation to a single, volatile asset. 

As Brodie Gay articulated in his <a href="/insights/the-devil-is-in-the-details-risk-and-return-in-residential-real-estate" target="_blank">blog post</a> “The Devil is in the details: risk and return in residential real estate,” the value of an individual home is far more volatile than what may be measured by the Case-Shiller index. Homeowners hold a portfolio far riskier than they may realize or desire and historically have had limited options to remedy the allocation. 

Using Brodie’s findings regarding volatility and applying these concepts to individual case studies, we find that the use of a program such as <a href="https://www.unison.com/homebuyer" target="_blank">Unison HomeBuyer</a> can help reduce exposure to single-asset residential real estate and re-allocate wealth in a better-diversified portfolio that will result not only in a superior Sharpe ratio<a href="#ftn1">[1]</a> but a more liquid portfolio to boot! 

<h3>Establishing the “Base Case” scenario</h3>
To determine the financial impact of using the Unison proceeds to reinvest in other investments, we must first establish a model that simulates the expected cash flow from homeownership. I will refer to this as the Base Case scenario. 

For our baseline model, we will use the following assumptions that are based on national averages: 

Home Purchase:
Purchase Price: $500,000
Mortgage Amount: $400,000 (80% LTV, 30-year fixed)
Down Payment: $100,000 (20%)
Purchase Transaction Costs: 2.0% of Home Price 

Hold Period Cashflow:
Interest Rate: 4.30%
Property Tax Rate: 1.35% of Purchase Price
Homeowner’s Insurance Rate: 0.35% of Purchase Price
Maintenance Cost: 1.0% of Purchase Price
Income Tax Rate: 25%
Inflation: 2% 

Home Sale:
Hold Period: 7 years
Home Price Appreciation (“HPA”): 3.4%
Sale Transaction Costs: 8.0% 

An outlay of these cash flows over the hold period of seven years will show the initial $100,000 investment withered down to $12,000 with an annualized IRR of -8.0%. 

Clearly these figures are flawed – after all, home ownership is supposed to be a good investment, right? Interestingly, a review of the Case-Shiller index vis a vis mortgages rates over the last two decades will show that mortgage rates are often higher than the unlevered return on real estate. 

<h6>Figure 1 – Spread of Cash-Shiller Real Estate Index against 30 Year Mortgage Rates, 1985-2015</h6>
<img src="https://contentimages.o-prod.unison.com/images/im/Figure-1.png" style="width:1000px;">

<h3>The “Rent Savings” component of homeownership</h3>
The fix here is that the general cost of living cannot be avoided, and therefore this cash outflow should be excluded from the analysis. Said another way, if you did not own your home, you would be paying rent. Therefore, these savings on rent must be added to the cashflow to provide a better picture of the benefit of home ownership. The U.S. Bureau of Labor Statistics provides data for rent on primary residences<a href="#ftn2">[2]</a>. By using this data to derive a rental yield, we can add this to the spread. 

<h6>Figure 2 – Rental yield added to Case-Shiller vs. 30 Year Mortgage Rates</h6>
<img src="https://contentimages.o-prod.unison.com/images/im/Figure-2png.png" style="width:1000px;"> 

We will add an assumed “Rent Savings,” which we will estimate to equal 130% of the mortgage payment (principal and interest). The comparison of rent to mortgage will vary broadly by location and is a key component in various “rent vs. own” or “affordability” analyses out there. Trulia has a useful <a href="https://www.trulia.com/rent_vs_buy/" target="_blank">blog</a> that explores how these can vary by location. 

With this offset added to the cash flow model, the IRR in our Base Case increases to 11.9%, with net worth increasing from $100,000 to $226,357 after seven years. 

<h3>Evaluating the use of Unison HomeBuyer</h3>
Let us now replicate the Base Case scenario but add the use of Unison HomeBuyer. Unison contributes 10% of proceeds on the purchase and is repaid the initial investment plus 35% of the change in value at the time of sale. We will call this the “Unison” scenario. 

For the moment, we will take the $50,000 in proceeds and set them aside. We will evaluate the impact of investing these proceeds, but first, let’s look at how the home ownership investment itself performs under either scenario. 

In the base case, the 20% ownership provides exposure to 100% of the upside (5x leverage). With Unison HomeBuyer, 10% down payment provides exposure to 65% of the upside (6.5x leverage). Therefore, based on home value alone, the use of Unison will provide higher returns to the homeowner in times of positive appreciation. In times of negative appreciation, the investment will drop to zero more quickly. 

The cash flows associated with the hold period are the same in both the Base Case and Unison scenarios. Given the lower initial investment, the IRR in the Unison scenario will be more sensitive to holding period cash flows. To rephrase, the Unison scenario is 1.3x more sensitive to HPA, and 2.0x more sensitive to holding period cash flows as compared to Base Case. 

With the assumptions we’ve outlined for these two scenarios, the downward pressure from the holding period cash flows does not outweigh the benefit of the increased leverage on HPA. The IRR for the Unison Case is 13.6% compared to 11.9% for Base Case. 

<img src="https://contentimages.o-prod.unison.com/images/im/Figure-A.png" style="width:800px;"> 

However, these resulting IRRs can shift around quite a bit with fluctuations in holding period cash flows, which can be modified by toggling certain variables (i.e., interest rate, income tax rate, property tax rate, insurance cost, maintenance cost, and implied rent). 

<h3>Factoring in the Reinvested Proceeds</h3>
The holding period cash flows, for the purposes of this analysis, are just noise. The required IRR of the additional cash proceeds received from Unison (the “Reinvested Proceeds”) is irrespective of the movements of the IRRs that relate to holding period cash flow fluctuation. 

The return on the Reinvested Proceeds – and the resulting risk profile of the investment portfolio – is the key component of this analysis. We would like to address the question: instead of investing more money into my home, should I invest elsewhere? What benefit would this provide? 

The concept of reinvestment risk is the key factor here. While investment in the home provides a higher return in the Unison scenario than in the Base Case, the fact is that only $50,000 is invested with Unison vs. $100,000 in the Base Case. The $50,000 of extra cash provided by Unison must be taken into consideration to compare the two scenarios. 

For instance, if the $50,000 in proceeds were not reinvested, but rather saved as cash in a low interest-bearing account (assume 1% annual interest), this “Unison + Cash” Case now has an IRR of 8.6% (vs. the 13.6% return on the home itself). 
<img src="https://contentimages.o-prod.unison.com/images/im/Figure-B.png" style="width:800px;"> 

We can run the same exercise with different alternate investments. Assume that rather than cash the additional $50,000 is invested in equities at a 6.3% return, or bonds at a 2.6% return<a href="#ftn3">[3]</a>. We can also assume that the $50,000 is invested in a “Mix” of all three options (50% stocks, 45% bonds, and 5% cash). The results are as follows:
<img src="https://contentimages.o-prod.unison.com/images/im/Figure-C.png" style="width:800px;"> 

<h6>Figure 3- IRR dispersion across various scenarios</h6>
<img src="https://contentimages.o-prod.unison.com/images/im/Figure-3.png" style="width:800px;"> 

An individual focused solely on return would look at the above metrics and brush off the idea of using Unison given the difficulty of replicating the homeownership IRR in other asset classes. However, these charts ignore volatility of both the individual assets and the resulting portfolio. 

<h3>Volatility and Sharpe Ratio considerations</h3>
Using historical data, we can observe that a home purchase with Unison can provide a similar return to that of a home purchase with the traditional 20% down structure, while providing reduced risk. 

<h6>Figure 4a – Annual historical return comparison for traditional 80/20 ownership vs. Unison<a href="#ftn4">[4]</a></h6>
<img src="https://contentimages.o-prod.unison.com/images/im/Figure-4a.png" style="width:1000px;"> 

<h6>Figure 4b – Unison reduces risk for a similar return<a href="#ftn5">[5]</a></h6>
<img src="https://contentimages.o-prod.unison.com/images/im/Figure-4b.png" style="width:600px;"> 

The graphs above have been produced using Case-Shiller data, which, as discussed, understates true volatility. 

Going back to our Base Case and Unison+Stocks scenario, we can review how these assets perform over time with the inclusion of error bars based on the volatility. This time, we will use the volatility that Brodie derived in his blog post rather than the volatility implied by the Case Shiller. The cash flow projections (and corresponding paths that are plus or minus one standard deviation of the projection) are depicted in Figure 5. 

<h6>Figure 5 – Expected growth of net worth over hold period<a href="#ftn6">[6]</a></h6>
<img src="https://contentimages.o-prod.unison.com/images/im/Figure-5.png" style="width:800px;"> 

The average annual return, standard deviation, and resulting Sharpe Ratio are presented below: 
<center><table style="undefined;table-layout: fixed; width: 360px">
<colgroup>
<col style="width: 160px">
<col style="width: 120px">
<col style="width: 120px">
</colgroup>
 <tr>
 <th></th>
 <th>Base Case</th>
 <th>Unison + Stocks</th>
 </tr>
 <tr>
 <td>Average Return</td>
 <td>18%</td>
 <td>13%</td>
 </tr>
 <tr>
 <td>Average STDev</td>
 <td>26%</td>
 <td>16%</td>
 </tr>
 <tr>
 <td>Sharpe Ratio</td>
 <td>0.69</td>
 <td>0.81</td>
 </tr>
</table></center>


<h3>Conclusion</h3>
To conclude on this preliminary analysis, the results presented are not unexpected. Using Unison to diversify an investment portfolio will reduce risk and provide a higher Sharpe ratio. But, the return alone, albeit riskier, would be higher in a levered real estate asset vs stocks or bonds. The ability to obtain easy and cheap leverage for real estate drives this result. This then begs the question – what if the Reinvested Proceeds were put into a rental property? We also ignore less quantifiable benefits of the alternate investment options for the Reinvested Proceeds, such as the higher level of liquidity in case of a “rainy day.” We will analyze this further in the next edition of The Unison Solution. 

[1] The Sharpe Ratio is the industry standard measurement for calculating risk-adjusted return, developed by Nobel laureate William Sharpe. For more information, refer to this <a href="http://news.morningstar.com/classroom2/course.asp?docId=2932&page=4 " target="_blank">Morningstar article</a>.

[2] https://fred.stlouisfed.org/series/CUUR0000SEHA

[3] Expected return based on BNY Melon 10-year Capital Market Return Assumptions for the Russell 3000 Index (equities) and Bloomberg Barclays U.S. Aggregate Index (fixed income).

[4] Annual 80/20 and Unison returns are hypothetical returns calculated using historical transaction data

[5] Annual risk is measured as the standard deviation of returns from 1985-2015.

[6] Graph is based on a logarithmic scale.

Are your nest eggs all in one basket? Managing concentration risk in personal wealth

Rayan Rafay, CFA – Managing Director, Head of Portfolio Management 

Institutional investors have been focused on real estate since the early 1970s, a time when many factors converged that compelled institutional investors, particularly pension funds, to begin investing in the asset class. The first real estate commingled fund was offered in 1968, and with the passage of ERISA in the United States in 1974, pension investors mandated diversification across asset classes<a href="#_ftn1" name="_ftnref1">[1]</a>. Endowments and foundations soon followed. Insurance companies, on the other hand, have been investing in real estate since the late 19th century. 

Transparency has always been a desirable attribute in investments, but it has been elusive for most institutional investors. Post Financial Crisis, however, legislation has gradually made it more and more difficult to conceal clearly-defined fees from investors and their constituents. MiFID II (UK)<a href="#_ftn1" name="_ftnref2">[2]</a> and ERISA (US)<a href="#_ftn1" name="_ftnref3">[3]</a> have put an increasing onus on institutional investors to verify and compare fees to select the most appropriate investment for their respective needs. 

One of the cases that has heightened concern amongst institutional investors is a <a href="https://www.bloomberglaw.com/public/desktop/document/BELL_et_al_v_ANTHEM_INC_et_al_Docket_No_115cv02062_SD_Ind_Dec_29_?1452041260" target="_blank">class action against Anthem Inc.</a> where it is alleged that the fiduciaries of the $5.1bn 401(k) plan failed to supply requested information and did not make a reasonable effort to reduce fees (among many other items). Lawsuits such as this have made institutional investors hypersensitive to fees and returns associated with high fees. The most visible example of this sensitivity was seen when <a href="https://www.forbes.com/sites/jonhartley/2014/09/22/why-calpers-is-exiting-the-hedge-fund-space/#6924f5c873ea" target="_blank">CalPERS divested from hedge funds in 2014</a>. Other notable lawsuits involve industry heavy-weights TIAA, CVS, Eli Lilly, Novo Nordisk, and Sanofi-Aventis<a href="#_ftn1" name="_ftnref4">[4]</a>. 

As active equity and fixed income managers increase transparency and disclosures, real estate has remained esoteric and fees remain hidden in LP or REIT structures where it is unclear what the total fee load is. Estimates range as high as 8%<a href="#_ftn1" name="_ftnref5">[5]</a> and if these fees are not baked-in to asset allocation studies then institutional investors could find themselves misallocating assets to investments that underperform their respective objectives.

<h3>The types of fees</h3>
When looking at commercial or residential real estate, there are many kinds of fees that are not immediately discernable to an institutional investor. As an example, a fund that owns single-family homes for rent is likely to be exposed to the following fees (the size of the words indicates the impact of that expense to fund returns). 
<img src="https://contentimages.o-prod.unison.com/images/im/fees1.png" style="width:750px;"> 

In contrast, with a real estate equity investment, such as those originated by <a href="http://unison.com" target="_blank">Unison</a>, typical fees would involve the following (the size of the words indicate the degree to which that expense impacts fund returns). 
<img src="https://contentimages.o-prod.unison.com/images/im/fees2.png" style="width:750px;"> 

All other costs are borne by the homeowner which makes a home equity investment a very efficient way to participate in home price appreciation (HPA) without having to deal with the cost and complications of generating rental income. 

The fees that are likely to be charged in both regular real estate funds and a home equity fund are laid out below, along with which type of product the fees tend to apply to. For the purposes of this article, ordinary real estate funds are referred to as ‘real estate ownership’ and home equity investments are referred to as ‘real estate equity.’ 
<img src="https://contentimages.o-prod.unison.com/images/im/fees3.jpg" style="width:700px;"> 

An example of how this plays out 

The impact of hidden fees is meaningful. To illustrate the impact of all these fees on the net return (actual return) an investor would experience, we have created two hypothetical funds, using the assumptions shown below. The real estate equity fund is not intended to reflect Unison’s past or future performance. It is intended to illustrate the complexity associated with fees. 

<h3>Real estate ownership fund</h3>
<img src="https://contentimages.o-prod.unison.com/images/im/fees4.png" style="width:600px;" align="left"> 
<h3>Real estate equity fund</h3>
<img src="https://contentimages.o-prod.unison.com/images/im/fees7.png" style="width:600px;" align="left"> 

These assumptions are simplistic but provide a reasonably accurate representation of the differences in costs associated with managing a fund that owns residential real estate assets and rents them out versus a fund that owns leveraged exposure to the equity in residential real estate<a href="#_ftn1" name="_ftnref6">[6]</a>.
<img src="https://contentimages.o-prod.unison.com/images/im/fees5.png" style="width:1000px;">
Real estate generates a significant difference between gross and net IRR, particularly when compared to another efficient, liquid asset class such as equities. A real estate equity fund is expected to experience a higher net IRR than a typical real estate ownership fund, despite assuming an embedded performance fee, a higher acquisition fee (10% vs. 3%), and no cashflow from leasing out assets. The primary reason for this is the leveraged exposure to HPA. The key message for an investor in a fund that owns and leases real estate is that the difference between owning an asset and collecting rents compared to what is experienced in the fund is material (18.6% gross compared to 8.6% after accounting for property-level expenses and then 5.5% after adjusting for fund-level expenses)<a href="#_ftn1" name="_ftnref7">[7]</a>. 

This is not to say that investing in a real estate fund that owns and leases properties is a bad investment. What it does suggest is that these returns should be appropriately calibrated in any asset allocation study, where real estate’s risk/return characteristics are appropriately reflected. 
 
<h3>Conclusion</h3>
As an institutional investor, ignoring fees beyond what is immediately apparent (investment management fee, audit fee) is not possible anymore. Negligence here results in a significant liability for all institutional investment fiduciaries. It is prudent to either monitor fees for reasonableness internally or to use one of the many firms that offer these services.<a href="#_ftn1" name="_ftnref8">[8]</a> 

For several reasons, real estate is a desirable asset for institutional investors, but failing to look at it on a net basis results in limited utility from asset allocation studies which desire real estate for its low correlation with other asset classes, low volatility, and seemingly strong cashflow characteristics<a href="#_ftn1" name="_ftnref9">[9]</a>. In fact, asset allocation studies often have a subjective limit on the allocation to real estate that is imposed to stop the model from allocating too much of a portfolio to the asset class. These subjective constraints would to some degree be obviated if net IRRs were used rather than gross IRRs. 

Real estate investment opportunities that reduce the potential for fees to chip away at returns should be considered as an attractive method to avoid the risk that fees and costs associated with maintaining assets erode returns (fees such as leasing fees, maintenance/repair, property taxes, vacancies etc.). The rationale for investing in real estate is likely to be explored further in subsequent blog posts. 

As always, if you have any questions, comments, or concerns, please contact us at contact@unisonim.com. 

<a href="#_ftnref1" name="_ftn1">[1]</a>The Evolution of Pension Fund Investment in Real Estate. 1990. Ellen Beckett Brown. MIT</a>

<a href="#_ftnref2" name="_ftn1">[2]</a> The Markets in Financial Instruments Directive is the EU legislation that regulates firms who provide services to clients linked to ‘financial instruments’ (shares, bonds, units in collective investment schemes and derivatives), and the venues where those instruments are traded. https://www.fca.org.uk/markets/mifid-ii</a>

<a href="#_ftnref3" name="_ftn1">[3]</a> The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans. https://www.dol.gov/general/topic/health-plans/erisa</a>

<a href="#_ftnref4" name="_ftn1">[4]</a> http://finance.yahoo.com/news/keller-rohrback-l-l-p-100000671.html</a>

<a href="#_ftnref3" name="_ftn1">[5]</a> https://www.forbes.com/sites/edwardsiedle/2016/06/16/pensions-unaware-hidden-real-estate-fund-fees-dwarf-disclosed-fees/#3148d76b1961</a>

<a href="#_ftnref6" name="_ftn1">[6]</a> An example of this product is the Unison HomeBuyer (www.unison.com) which typically invests 10% in the equity of a home in exchange for 35% exposure to the change in price of each home. These investments tend to be originated for a 30-year period.</a>

<a href="#_ftnref7" name="_ftn1">[7]</a> These examples are hypothetical in nature and only for indicative purposes. Actual results can materially differ.</a>

<a href="#_ftnref8" name="_ftn1">[8]</a> Firms such as Cambridge Associates, Greenwich Associates, Morningstar, AON Hewitt, Mercer, Towers Watson, bfinance, etc.</a>

<a href="#_ftnref3" name="_ftn1">[9]</a> AON Hewitt. http://www.aon.com/attachments/human-capital-consulting/Asset-Allocation-through-Changing-Market-Environments.pdf</a>

When you invest in real estate funds, fees matter.

Krishanu Nandy, Ph.D. – Quantitative Strategist 


<center>“All the leaves are brown and the sky is gray.
I’ve been for a walk on a winter’s day.
I’d be safe and warm if I was in L.A.,
California dreamin’ on such a winter’s day.” 

– The Mamas and The Papas</center> 
 
Earlier this year, Chicago’s stretch of 8 days without sunshine (January 21st to January 29th, 2017) made headlines as the cloudiest spell in over 25 years<a href="#_ftn1" name="_ftnref1">[1]</a>. More so, for anyone who has had to dig their car out of snow – or worse yet, dig their car into a parking spot – the thought of moving to a place with more temperate weather is a constant temptation. Add to this the almost inevitable, lingering shadow of seasonal affective disorder – a DSM<a href="#_ftn1" name="_ftnref2">[2]</a> recognized mood disorder believed to be related to the lack of sunlight – raises the question of how motivated people might be to leave for sunnier climes. 

A more economically interesting question, however, is whether or not people are willing to pay to move to a place which is sunnier. Can a price be put on the pleasure of enjoying a mild winter’s day? To answer this question, we turned to residential real estate prices, as a measure of how much people were willing to pay to live in a sunnier location. 
 
<h6><center>Figure 1: Counties in the contiguous states classified into deciles based on the average amount of sunshine received from 1979 – 2011. A list of large cities corresponding to each decile are shown on the left.</center></h6>
<img src="https://contentimages.o-prod.unison.com/images/im/sunlight.png" style="width:1000px;"> 

To understand which parts of the country receive more sunlight than others, we turned to the North America Land Data Assimilation System (NLDAS) Insolation Dataset. The term insolation, also known as solar irradiation, is a term for the intensity of solar radiation incident on the surface of the earth at a particular point and is measured in units of kilojoules per square meter. Insolation is dependent on two major factors – the season (insolation drops in winter due to the tilt of the earth’s axis) as well as the latitude of the location (the further north one goes, insolation drops due to projection of the incoming radiation from the sun). Insolation thus accounts for not only the number of sunny days but also the intensity of sunshine. It is further noteworthy that more than 70% of the incoming radiation can be blocked by the presence of clouds <a href="#_ftn1" name="_ftnref3">[3]</a>. A map of counties in the United States tagged by the amount of sunshine received (Figure 1) tells a story of a country that is sunny and warm in the south and cloudy and cold in its north. 
 
In order to investigate the performance of real estate based on the amount of sunshine received, we grouped counties into deciles and constructed Case-Shiller home price indices <a href="#_ftn1" name="_ftnref4">[4]</a> for each of the deciles. The Case-Shiller home price index, which is a weighted repeat sales index, tracks changes in the prices of single family residences over time. The indices were calculated on a sample of 10 million sales pairs from 1996 to 2015 <a href="#_ftn1" name="_ftnref5">[5]</a>. 

<h6><center>Figure 2: Average annual returns on investment by decile.</center></h6>
<img src="https://contentimages.o-prod.unison.com/images/im/sunlight2.png" style="width:1000px;"> 

An inspection of the average returns on an investment from 1996 to 2015 shows a noticeable trend towards higher returns in sunnier counties (Figure 2). Texas, Florida, Arizona and California, are likely the strongest drivers of the high average returns seen in the top two deciles with Texas, California and Florida having the highest numeric growth in population since 1990 <a href="#_ftn1" name="_ftnref6">[6]</a>. In addition to the aforementioned four states being home to 10 out of 15 of the country’s fastest growing cities <a href="#_ftn1" name="_ftnref7">[7]</a>, between 2015 and 2016 Florida, Arizona and Texas were amongst the top 10 fastest growing states on a percentage basis <a href="#_ftn1" name="_ftnref6">[6]</a>. Additionally, between 1990 and 2015, California, Florida and Texas ranked 1st, 4th and 7th by percentage growth of immigrant populations <a href="#_ftn1" name="_ftnref8">[8]</a>. In fact, more than 50% of the population growth in Texas’ can be attributed to foreign-born individuals <a href="#_ftn1" name="_ftnref9">[9]</a>, a process that is believed to stimulate the local economy due to the influx of working age populations, often with in demand skills <a href="#_ftn1" name="_ftnref10">[10]</a>. 

On the other end of the spectrum, the cloudiest decile earned returns that were on par with the fourth through the sixth deciles. This likely a result of a renewed interest in living in the Pacific Northwest – namely the notoriously overcast cities of Seattle, WA and Portland, OR. Despite being known for having cloudy skies, the weather in Portland and Seattle are comparatively mild given their northerly latitudes, possibly due to the influence of warm ocean currents <a href="#_ftn1" name="_ftnref10">[10]</a>. Between 2015 and 2016, Washington and Oregon ranked 4th and 9th for states with the highest numerical growth of population and 5th and 6th for states with the highest percentage growth <a href="#_ftn1" name="_ftnref6">[6]</a>. The second and third deciles, that include much of the Rust Belt, are the worst performing deciles. The Midwestern cities of Chicago, Detroit and Cleveland are all amongst the large American cities that have shown negative growth since 1990, with Illinois having the largest numeric population loss of any state between 2015 and 2016 <a href="#_ftn1" name="_ftnref6">[6]</a>. 

One of the major drivers of population growth in the sunny states is the growth of jobs. From 2008 to 2015, Texas, California and Florida ranked 3rd, 5th and 6th in percentage growth of jobs <a href="#_ftn1" name="_ftnref12">[12]</a>. In addition to the availability of jobs, the fact that Texas and Florida do not have personal state income taxes, coupled with the relatively low cost of living, make them attractive destinations to move to. It should be noted, however that the returns are however not without their risks, as the two appear to have an almost linear relationship, when returns are plotted against systematic volatility (Figure 3). Growth areas with steeply increasing real estate prices driven by burgeoning demand, are also the regions that are most susceptible to demand drying up in times of economic downturn. 


<h6><center>Figure 3: Plot of return vs systematic volatility with points labeled by decile.</center></h6>
<img src="https://contentimages.o-prod.unison.com/images/im/sunlight3.png" style="width:600px;"> 

All things considered, there appears to be a general trend of people paying more to live in areas with milder weather, though the effect of sunlight alone is confounded by other factors such as job prospects and local tax laws. Indeed, the effect of job growth in a region or the mobility of labor in general on home prices are topics worthy of their own research, since they are factors that almost certainly play a much more significant role than weather in the decision of individuals and families to move from one place to another. 

 
 Research References:
<a href="#_ftnref1" name="_ftn1">[1]</a>http://wgntv.com/2017/01/29/chicago-has-gone-8-days-with-no-sun-the-cloudiest-spell-in-over-25-years/</a>

<a href="#_ftnref2" name="_ftn1">[2]</a>The Diagnostic and Statistical Manual of Mental Disorders published by the American Psychiatric Association, defines and classifies mental disorders</a>

<a href="#_ftnref3" name="_ftn1">[3]</a> “Effects of clouds on erythemal and total irradiance as derived from data of the Argentine Network”, Cede et. al., Geophysical Research Letters, 2002</a>

<a href="#_ftnref4" name="_ftn1">[4]</a> “Prices of Single Family Homes Since 1970: New Indexes for Four Cities”, Case and Shiller, New England Economic Review, 1987</a>

<a href="#_ftnref5" name="_ftn1">[5]</a> The sample size was chosen as a compromise between the accuracy of the results and the growth in computational time required to calculate the indices. Below is the visualization of 1 million sales-pair samples used to calculate the home price index.</a>
<img src="https://contentimages.o-prod.unison.com/images/im/sunlight4.png" style="width:800px;">
 
<a href="#_ftnref6" name="_ftn1">[6]</a> Calculated using data from The United States Census Bureau Population and Housing Estimates</a>

<a href="#_ftnref7" name="_ftn1">[7]</a> http://www.census.gov/newsroom/press-releases/2016/cb16-81.html</a>

<a href="#_ftnref8" name="_ftn1">[8]</a> The Migration Policy Institute</a>

<a href="#_ftnref9" name="_ftn1">[9]</a> “The Foreign-Born Population in Texas: Sources of Growth, Office of the State Demographer, Texas Demographic Center”, October, 2015</a>

<a href="#_ftnref10" name="_ftn1">[10]</a> “Is Migration Good for the Economy?”, Organization for Economic Co-operation and Development, May, 2014</a>

<a href="#_ftnref11" name="_ftn1">[11]</a> http://oceanservice.noaa.gov/education/kits/currents/05currents3.html</a>

<a href="#_ftnref12" name="_ftn1">[12]</a> “Which States Have the Most Job Growth Since the Recession?”, The Pew Charitable Trusts, May, 2015</a> 

Data References:
[1] North America Land Data Assimilation System (NLDAS) [https://wonder.cdc.gov/wonder/help/Insolation.html] 
[2] United States Census Bureau [https://www.census.gov/programs-surveys/popest.html].

Sunshine and residential real estate

The Devil is in the details: risk and return in residential real estate

Rayan Rafay, CFA – Managing Director, Head of Portfolio Management 


With over $71 trillion USD in assets under management<a href="#_ftn1" name="_ftnref1">[1]</a>, institutional investment is a core driver of the global economy. Institutional entities have the common objective of generating cash flows capable of fulfilling future obligations. These obligations fluctuate with respect to economic factors such as interest rates, inflation, and unemployment rates. In addition, the compounding nature of investment returns means that significantly more capital is required to fulfill a short-term obligation in comparison to a longer term one. 

The three most common types of institutional entities are pensions, endowments, and sovereign wealth funds. Pensions serve a fundamental societal need. Funds are invested during the service period of an employee, which are later drawn upon to support an employee’s needs after retirement. Endowments, on the other hand, invest money today in order to support the future of organizations and institutions. These entities are often faced with recurring annual expenses, and will, therefore, benefit from investments that provide cash flows to match these needs. Finally, sovereign wealth funds use government surpluses to invest in a variety of assets to diversify a country’s economy or to be drawn upon in times of economic distress. 

Institutional investment strategy is determined largely by the interest rate environment. In a high rate environment, fewer risky investments are required because lower risk investments provide adequate returns. However, when interest rates are low, such as in our current environment, many of these institutions find themselves underfunded and needing to take on more risk or require additional funding in order to meet obligations. 

Based on the Willis Towers Watson Pension Index, the average US plan has only 73% of the assets needed to fund their respective liabilities. In an extreme case, the city of Detroit marked US history as being the first municipality to declare bankruptcy, an event largely driven by the degree to which its pension funds were underfunded (having fewer assets than needed to meet liabilities). 

Inflation is the second principal driver of institutional investor activity. Inflation often determines the amount of payment that must be made to an employee in retirement or by an endowment to the institution/organization it is supporting. This is usually detailed in the contract given the significant impact inflation has on the purchasing power of a retiree or the changes in costs facing a funded organization. 

Over 40% of inflation is determined by the cost of housing; it is the largest component of inflation (CPI) in the United States and for most of the world. Historically, the only way to hedge inflation was to purchase TIPS (treasury inflation-protected securities), which are scarce and oddly constructed, or to purchase some proxy for inflation, be it commodities, farmland, or infrastructure. Investments in these assets are predicated on their historical link with inflation, rather than them being a material component of CPI. The cost of housing, however, is a direct component of inflation and is a much simpler, purer way to hedge the inflation exposure that is innate in institutional investors’ liabilities. 

Investing in housing has historically been problematic, as the only way to access the asset class has been through mortgages or the purchase and subsequent rental of homes. Mortgages are a fixed income investment with no value participation, and purchasing homes as rental properties are difficult to scale and are expensive as a result. Ultimately, a mortgage is more sensitive to the credit risk of the homeowners and interest rates than any other factor. While mortgages and rental properties at various times in the market cycle can be an attractive total-return investment, neither can deliver the investment attributes for hedging or outperforming long-dated inflation that is the core investment objective that a liability-focused institutional investor seeks to fulfill. 

US Single-Family housing constitutes $30tn in total value<a href="#_ftn1" name="_ftnref2">[2]</a> making it the largest asset class in the United States. With approximately $162tn in total value globally, it is also the largest asset class in the world. For any large institutional investor, making investments in all investable asset classes is important to consistently achieve strong returns with a prudent level of risk. 

These two motivations – inflation hedging and exposure to the largest asset class in the world – make single-family real estate very compelling to an institutional investor. Home equity investing, alongside a homebuyer or through purchasing a piece of equity from an existing homeowner, is a frictionless way to invest and not have to worry about the maintenance of the property, tenants, or vacancies. The typical setup of a single-family home equity fund (10 – 50 years) is also attractive to institutional investors who worry about inflation in the long-term but are rarely concerned about inflation in the short-term. Finding investments that will keep up with inflation over the long-term is challenging. 

For these reasons, institutional investors are supportive of establishing residential equity as a widely-accepted and invested asset class. On the receiving end, this need for institutional investors to gain exposure to single-family housing provides homebuyers and homeowners with a way to access housing, lower monthly payments, or remain in their current home in a way that was previously not possible. For savvy homeowners it also allows them to disentangle their property investment with the emotional concept of a ‘home.’ Having too much of your net worth tied in one property is a very risky investment strategy. Often, young homeowners will own a home worth many times their savings. The ability to diversify one’s assets away from a single, large investment, while still retaining one’s home, is a socially beneficial function. 

Unison endeavors to bridge the gap between these fundamental needs by providing institutional investors the opportunity to invest in single-family housing and offering homebuyers and homeowners access to alternative non-debt capital. Consumers interested in working with Unison should visit <a href="https://www.myunison.com/" target="_blank">Unison</a> 

<a href="#_ftnref1" name="_ftn1">[1]</a>Global Asset Management 2016: BCG</a>

<a href="#_ftnref1" name="_ftn2">[2]</a>Zillow Research. How Much is Every Home in America Worth? A lot. Svenja Gudell, December 31, 2016</a>

Why institutional investors need to invest in residential real estate

The 2023 Home Equity Report showcases and analyzes data to elucidate the state of home equity over the past twelve months.

There is only one other period in the modern U.S. economy that closely mirrors that which we are currently experiencing: the 1970s. Read the white paper to discover the lessons we've learned and what we can expect based on historical precedent. 

Single-family rentals have long been an attractive investment option, but they’re only one side of the real estate investment market. Unison equity agreements are the perfect complement to SFR in a portfolio–read more to find out why. 

Single-Family Rentals, Unison Equity Sharing Agreements, & the Case For a Diversified Portfolio

The housing market is returning to historical growth. This report elucidates that movement, checks in with current supply and demand, and forecasts the future of Home Price Appreciation (HPA).

Housing Market Commentary: 2023 Economic Landscape

This report describes the historical performance of owner-occupied residential real estate relative to other asset classes in inflationary periods & tightening cycles & also reveals how it can provide excess returns relative to  stocks & bonds. 

Breaking into the 60/40 Portfolio with Residential Real Estate

As mortgage rates have risen rapidly in the second half of 2022, Unison expects the national housing market to transition over the next twelve months. The effects will differ by region--our report includes the forecast.

MSA Housing Outlook (2)

The report notes that U.S. households currently hold over $29 trillion in untapped equity, and highlights how homeowners may want to consider putting their assets to use.

In this paper, we seek to answer the question of what Unison believes will happen to HPA in the current environment of rising interest rates, inflation, and chronic housing supply shortage.

Home Prices, Interest Rates, and Inflation

With the recent increase in the 30-year mortgage rate, housing investors are seeking to understand the impact of rising rates and inflation on home price appreciation (HPA).  

With the recent increase in the 30-year mortgage rate, housing investors are seeking to understand the impact of rising rates and inflation on home price appreciation (HPA). Unison Investment Management has examined historical rising rate environments and the effect on HPA.

The Impact of Higher Rates and Inflation on Home Price Appreciation

While Unison focuses primarily on mid to long-term forecasts of home price appreciation, we have collated the short term views from market participants on behalf of our clients given the incredible investment performance in 2021.

While Unison focuses primarily on mid to long-term forecasts of home price appreciation, the following report provides Unison's 2022 HPA projection and collated short term views from market participants for the benefit of our clients.

U.S. Residential Home Price Forecast 2022

2022 HPA projections: Unison and collated market forecasts

2021 has been a banner year for home equity values across the country. The Unison team shares insights on which places thrived, which didn't, and what this means for homeowners.

Performance analysis of the company’s assets over the past decade as well as insight into the scope and scale of asset opportunities and growth in the home co-investing category.

A confluence of positives has driven markets for the past decade: decreasing interest rates, lower volatility, increasing liquidity, growing equity prices, and tightening credit markets. 

Owner-occupied residential (OOR) real estate is both the predominant and most overlooked subsector in real estate. It also offers the lowest volatility and one of the best risk-adjusted returns among core real estate sectors. 

Owner- Occupied Residential Real Estate - the Key to Improving Institutional Real Estate Portfolios

Resilient and Vulnerable Cities: A Guide to Residential Real Estate Investing

Covid-19 has resulted in countries voluntarily halting economic activity.  We contemplate how this sudden economic interruption will affect residential real estate valuation.  

Covid-19 and The Impact To Owner Occupied Residential Real Estate

Fast and robust algorithms for computing benchmark indices. The paper was authored by Brodie Gay, VP of Research.

Home Price, Return and Volatility Indices

The paper was authored by Brodie Gay, Brad Lookabaugh, and Rayan Rafay.

Measuring Inflation - Political Bias and the Descent of Home Ownership

SAN FRANCISCO, CA / ACCESSWIRE / November 29, 2023 / Unison, the pioneer of equity sharing agreements, closed a securitization of $202 million of assets, supporting the U.S. Home Equity Investments (HEI) asset class and increasing access to institutional investors who want to participate in this emerging sector. This securitization is the first of Unison's to take place after DBRS Morningstar <a href="https://pr.report/D6flLdGY">finalized their ratings criteria</a> for the burgeoning asset class earlier this year. 

DBRS Morningstar rated Unison's senior bond BBB, and the mezzanine bond BB-, setting the precedent for future rated securitizations to take place. 

Unison's equity sharing agreements help homeowners who otherwise struggle to unlock trapped equity, as traditional solutions require them to take on additional debt. This transaction further enables Unison to pave the way for homeowners to renovate their homes, save for retirement, and consolidate their debt, rather than further adding to it. Unison is proud to provide this innovative alternative both for homeowners in need and investors pursuing efficient and scalable investment opportunities into the largest asset class in the world: owner-occupied residential real estate. 

The transaction closed on Nov. 28, 2023, and included Barclays, as structuring agent and joint bookrunner, and Performance Trust, as joint bookrunner. Mayer Brown, LLP served as the legal representative of the issuer, and Hunton Andrews Kirth, LLP as the legal representative of the initial purchasers. 

As Unison's first rated securitization after DBRS Morningstar finalized the ratings criteria for the HEI asset class, the transaction is a significant step forward in validating HEI as a mainstream asset for institutional and other investors. Unison, who pioneered the equity sharing agreement and institutionalized the HEI asset class, is delighted to continue to occupy the forefront of its formalization and recognition of its resilience. 

Unison Chief Investment Officer Matt O'Hara describes the securitization as "a demonstration of both the increasing investor demand for scalable investment opportunities into the largest asset class in the world - owner-occupied residential real estate - and the heightened confidence in Home Equity Sharing Agreements as a reliable and gainful asset." 

As a market leader, Unison Investment Management (UIM) helps homeowners access the accumulated value of their homes while enabling institutional investors to access U.S. residential home price appreciation. Their portfolios provide low volatility and high risk-adjusted net returns relative to other major asset classes.

The securitization is Unison's first under DBRS Morningstar's recently finalized ratings criteria for the U.S. Home Equity Investments asset class

Unison Announces First DBRS Rated Securitization of $202 Million of Unison Home Equity Agreements

SAN FRANCISCO, November 14, 2023 (Newswire.com) - Unison founder and CEO, Thomas Sponholtz, has been recognized as one of Inman’s “2023 Best of Proptech,” which recognizes achievements of leaders changing the residential landscape. The full class of honorees were announced on Inman’s website on Wednesday, November 8. 

Sponholtz founded Unison upon observation of two problems: first, homeowners who wished to tap into their rapidly increasing home equity were forced to use products that only added to their debt with monthly payments and interest; investors, meanwhile, were struggling to obtain efficient, diversified access to the lucrative residential real estate asset class. His solution: the equity sharing agreement. 

A Unison equity sharing agreement enables homeowners to convert up to 15% of their equity into cash in exchange for a percentage of the home’s future change in value. With no interest or monthly payments, Unison does not add to a homeowner’s debt; instead, the agreement is the vehicle for financial agency. Homeowners can use the funds however they’d like: to start a small business, diversify their portfolio, renovate their home, or plan for retirement. With access to Unison’s Home Partnership Team, partnering homeowners have the resources they need to navigate their respective roads to financial wellbeing. 

Sponholtz responded to the award, “I am honored to be selected for Inman’s Best of Proptech Award for 2023. I built this company to empower homeowners to achieve their dreams without languishing in the shadow of debt, and look forward to more investors embracing the opportunities presented by owner-occupied real estate as a new asset category.”

As Inman expands its awards program recognizing the achievements of trailblazers throughout the real estate community, Sponholtz is selected as a winner in “Alternative Finance.”

Unison CEO Thomas Sponholtz Announced as One of Inman’s '2023 Best of Proptech'

SAN FRANCISCO--(<a href="https://www.newswire.com/news/unison-announces-securitization-of-165-million-equity-sharing-22119974">BUSINESS WIRE</a>)--<a href="https://unison.com">Unison</a>, the pioneer of equity sharing agreements, closed a securitization of $165 million of assets, supporting such agreements nationwide and increasing access to institutional investors who want to participate in the novel, lucrative sector of the U.S. Home Equity Investments (HEI) asset class. This transaction, arriving on the heels of a turbulent market, reflects growing confidence in equity sharing agreements as a reliable, gainful asset. 
After a previous short-term decline, home prices have leveled off and sprung to life. Over the last three months, annualized HPA totaled 17.2%—triple the historical average. However, homeowners struggle to unlock trapped equity, as traditional solutions require them to take on additional debt. This transaction increases liquidity for homeowners seeking to consolidate their debt, renovate their homes, save for retirement, and practice financial wellness. Unison proudly offers this innovative option both for homeowners in need and investors pursuing efficient and scalable investment opportunities into the largest asset class in the world: owner-occupied residential real estate. 
The transaction closed June 9, 2023 and included Barclays and Performance Trust as the structuring agent and bookrunner, respectively. Mayer Brown, LLP served as the legal representative of the issuer, and Hunton Andrews Kirth, LLP as the legal representative of the initial purchasers.
Coupled with the news that DBRS Morningstar finalized the ratings criteria for the HEI asset class, the transaction further validates HEI as a mainstream asset for institutional and other investors. During the COVID era, the market became uncertain, even precarious; though it has been on the upswing since the pandemic’s peak, it remains shy of confident stability. This transaction demonstrates that Unison, who pioneered the equity sharing agreement and institutionalized the HEI asset class, is at the forefront of its formalization and recognition of its durability. 
“The fact that we are able to securitize in this environment speaks volumes to the validity of our asset class,” adds Unison Chief Investment Officer Matt O’Hara. “We look forward to the upcoming rating from DBRS Morningstar, which further confirms the potency and potential of home equity investments on a larger scale.” 
As a market leader, Unison Investment Management (UIM) helps homeowners access the accumulated value of their homes while enabling institutional investors to access U.S. residential home price appreciation. Investing in homes since 2006, UIM currently manages $1.69B in residential equity agreements, and has a 10+ year track record of 17.0% annualized net returns since 2010. Their portfolios provide low volatility and high risk-adjusted net returns relative to other major asset classes.

DBRS Morningstar’s finalized ratings criteria for the U.S. Home Equity Investments asset class and increased investor demand for access to owner-occupied residential real estate reflects confidence in Equity Sharing Agreements as reliable and gainful. 

Unison Announces Securitization of $165 Million Unison Home Equity Agreements

SAN FRANCISCO, September 5, 2023 (<a href="https://www.newswire.com/news/unison-investment-management-announces-sandra-taube-godard-former-22120032">Newswire</a>) - Today, <a href="https://unisonim.com">Unison</a>, an equity-sharing firm with approximately $1.69 billion in assets under management, announced that Sandra Taube Godard has joined the organization as its Managing Director for the Investment Management team in Canada. In this newly created role, Ms. Taube Godard will be responsible for bolstering the firm's investment strategy and client relationships across Canadian markets.
 
Ms. Taube Godard brings over 30 years of experience in private capital investing. Before joining Unison Investment Management, LLC (UIM), Ms. Taube Godard was Co-Head of Wells Fargo Securities Canada Ltd., responsible for commercializing the firm's Private Credit, Equity, and Real Estate capabilities. Prior to Wells Fargo Securities, Ms. Taube Godard was a Managing Director at UBS and was responsible for building the Alternate Capital Solutions initiative within the Investment Bank, delivering unique investment opportunities to private capital investors. Throughout her career, Ms. Taube Godard has taken the lead on working with longer-horizon investors, including Canadian public pensions, insurance companies, sovereign wealth funds, and select family offices. 
 
"Sandra's exceptional background and pragmatic leadership are what we need as we continue to expand Unison's global footprint. She understands investors' strategic needs, and we look forward to working with her to further our investment capabilities and capital-raising endeavors while continuing to serve our clients in the most efficient way possible," said Matt O'Hara, Chief Investment Officer.

Ms. Taube Godard Brings 30 years of Expertise Working with Large Institutional Investors. Ms. Taube Godard Will Oversee Unison's Strategic Initiatives and Client Partnerships Across All Canadian Markets.

Unison Investment Management Announces Sandra Taube Godard, Former Wells Fargo and UBS Executive, as Managing Director for Investment Strategy in Canada

SAN FRANCISCO — May 3, 2023 — Unison founder and CEO, Thomas Sponholtz, has been recognized as one of Inman’s “2023 Best of Finance,” which seeks to honor the “best and brightest” in the combined mortgage and finance industries. The full class of honorees were announced on Inman’s website on Monday, May 1.

 Sponholtz founded Unison upon observing two different conundrums. On the one hand, homeowners who wished to tap into their growing mountains of home equity were forced to utilize options that only added to their debt with monthly payments and interest. Investors, on the other hand, were struggling to obtain efficient, diversified access to the lucrative residential real estate asset class. His solution: the equity sharing agreement. 

 A Unison equity sharing agreement enables homeowners to convert up to 17.5% of their equity into cash in exchange for a percentage of the home’s future change in value. With no interest or monthly payments, Unison does not add to a homeowner’s debt; instead, the agreement opens the door to a panoply of possibilities. Homeowners can use the funds however they’d like: to renovate their home, start a small business, diversify their portfolio, or bolster their retirement planning. With access to Unison’s Home Partnership Team, partnering homeowners have the resources they need to navigate their unique roads to financial wellbeing. 

 Regarding Sponholtz’s inclusion on the inaugural list, Inman noted, “You’ve distinguished yourself by your sizable impact on the residential lending industry. Leaders like you are reshaping the mortgage space for professionals and consumers alike."

 Sponholtz thanked Inman for the recognition, adding, “I built this company to help homeowners achieve their dreams without incurring more debt, and hope more investors embrace the opportunities presented by owner-occupied real estate as a new asset category.”

 About Unison:
Unison is a San Francisco and Omaha-based company that pioneers a smarter, better way to own your home. Until now, the only way to finance a home was by taking on debt. Through residential equity sharing agreements, we help homeowners access their equity flexibly with no monthly payments or interest. We enhance home affordability, reduce debt, and deliver a less risky way for homeowners, investors, and society to think about that important asset- the home. Unison operates in 30 states and territories, including Washington, D.C., and has helped over 10,000 households, with a combined home value of more than $8 billion. More information at <a href="https//www.unison.com">www.unison.com</a>

Inman’s editorial team has crafted an inaugural list of the best and brightest in the mortgage and finance space;  Unison founder and CEO Thomas Sponholtz is among those honored.

Unison CEO Thomas Sponholtz announced as one of Inman’s “2023 Best of Finance”

The company finishes banner year of growth with largest securitization of its kind.

 

 <li>Residential equity agreement (REA) securitization creates an unprecedented opportunity for institutional investors to participate in the residential equity market.</li> 
 <li>The securitization is intended to drive favorable financial benefits for consumers including increased efficiency and better leverage in the markets.</li>
 <li>Expands C-suite with two seasoned executives.</li>

 
SAN FRANCISCO, February 07, 2022 (<a href="https://www.businesswire.com/portal/site/home/" target="_blank">BUSINESS WIRE</a>) -- <a href="https://www.unison.com/">Unison</a>, the leader in residential equity agreements (REAs), has closed a $443 million securitization, which supports residential equity agreements across the country and gives more access to institutional investors who want to participate in the sector. This milestone transaction is the largest securitization of REAs to date, rounding out a historical year of growth for the fintech company.

Home prices have been increasing rapidly over the past year, creating a record $25 trillion of wealth locked in the U.S. housing market according to the <a href="https://fred.stlouisfed.org/series/OEHRENWBSHNO" target="_blank">Federal Reserve of St Louis.</a><a href="#ftn1">[1]</a> Unlocking trapped equity, however, has gotten harder as banks have tightened lending standards and traditional home equity solutions require a homeowner to take on additional debt and monthly payments. This transaction offers the opportunity for investors to access residential real estate equity and increases liquidity for homeowners across the country looking to monetize the equity in one of their most valuable assets—their homes.

 This transaction closed December 22, 2021 and included Nomura Securities International, Inc. as the structuring agent and joint bookrunner with participation from Barclays Capital Inc. as joint bookrunner. Mayer Brown, LLP served as the legal representative of the issuer, and Sidley Austin, LLP served as the legal representative of the initial purchasers.

 "The Unison securitization allows a wider range of investors to participate in the space of residential equity agreements," said Matthew O’Hara, Head of Portfolio Management & Research, Unison Investment Management. "It also increases the efficiency of the market, which should lead to wider adoption amongst homeowners, ultimately leading to a larger, more liquid marketplace that benefits homeowners and investors alike."

 "We are doing something truly innovative in a market that is ripe for change," Unison founder and CEO Thomas Sponholtz said. "This securitization adds a new component to our investment management arm and adds an important source of capital to fund consumer REAs across the country; we have the opportunity to utilize this funding mechanism to help our current and future consumers harness the power of the equity in their homes. I’m proud of the work the Unison Investment Management team has accomplished, and this is another important milestone that is helping to make residential equity more accessible for both consumers and investors seeking exposure to the market."

 As a part of its growth, Unison has also <a href="https://www.unison.com/press/unison_president_cfo/">added new talent</a> to its executive team, naming PayPal/eBay veteran Ryan Downs as President, Silicon Valley Bank growth expert Scott Case as Chief Financial Officer and Wells Fargo Securities Joe Celentano as Global Head of Markets. 

 Unison Investment Management (UIM) delivers efficient and scalable investment opportunities into the largest asset class in the world: owner-occupied residential real estate. Unison Investment Management has been investing in homes since 2006, currently manages $1.3B in residential equity agreements, and has a 10+ year track record of 16.3% annualized net returns since 2010. Unison Investment Management’s portfolios provide low volatility and high risk-adjusted net returns relative to other major asset classes.

 
About Unison

 Unison is a San Francisco-based company that is pioneering a smarter, better way to own your home. Until now, the only way to finance a home was by taking on debt. Through Unison residential equity agreements, we help homeowners access their equity flexibly with no monthly payments or interest. We enhance home affordability, reduce debt, and deliver a less risky way for homeowners, investors, and society to think about their most important asset - the home. For additional information, visit <a href="https://www.unison.com/"> www.unison.com</a> or follow us on <a href="https://www.facebook.com/MyUnison/" target="_blank"> Facebook</a>, <a href="https://www.instagram.com/myunison/" target="_blank">Instagram</a>, <a href="https://twitter.com/Unison" target="_blank">Twitter</a>, and <a href="https://www.youtube.com/channel/UCCmPJzvS6KCqcg9GYI8PYUA" target="_blank">YouTube</a>.

 

<div id="footnotes">
 [1]
Board of Governors of the Federal Reserve System (US), Households; Owners' Equity in Real Estate, Level [OEHRENWBSHNO], retrieved from FRED, Federal Reserve Bank of St. Louis;<a href="https://fred.stlouisfed.org/series/OEHRENWBSHNO" target="_blank"> https://fred.stlouisfed.org/series/OEHRENWBSHNO</a>, January 13, 2022.</a>
 
 
</div>

 <a href="https://www.businesswire.com/news/home/20220207005168/en/" target="_blank">View source version on businesswire.com</a> 

 
Press Contact
 <a href="mailto:mediadesk@unison.com">mediadesk@unison.com</a>

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The company finishes banner year of growth with largest securitization of its kind.

Unison Announces Securitization of $443 Million Unison Residential Equity Agreements

Unison | Securitization

<img src="https://s3-us-west-2.amazonaws.com/contentimages.o-prod.unison.com/images/blog/unison-2020-jobs-report.jpg">
<h3>Read the full Unison: Resilient and Vulnerable Cities <a href="https://contentimages.o-prod.unison.com/images/im/downloads/Resilient-and-Vulnerable-Cities.pdf" target="_blank">report</a>.</h3> 

SAN FRANCISCO — June 16, 2020 — New research published today by home co-investing company Unison proposes a new way of understanding the economic impact of the pandemic and the long-term effect it will have on home prices in select U.S. cities. 
 
“Resilient” industrial sectors where businesses have been able to maintain productivity during the pandemic and adapt to the market environment (such as financial services and information technology) have enjoyed a higher level of job stability, while “vulnerable” industrial sectors like retail, manufacturing and hospitality have experienced much more severe levels of job loss. Based on historical analysis, cities with high concentrations of vulnerable job sectors will experience slower recoveries in housing prices, according to Unison’s report. 
 
“Historically, cities with high concentrations of jobs in resilient industrial sectors experience the quickest recovery in housing prices,” said Unison VP of Research Brodie Gay. “Furthermore, as a result of shelter in place ordinances, the home has become a center for commercial and retail activity. Working and shopping from home are the new norm. Real estate capital is beginning a secular rotation out of undiversified retail and commercial spaces like malls and large office buildings. Investing in diversified residential real estate, with a tilt towards resilient cities, will provide institutional investors better, more balanced exposure to the U.S. economy.”
 
The report shows that based on previous recessions, increases in unemployment generally correlate with drops in home prices, and the two factors are geographically linked. For example, during the Global Financial Crisis of 2007-08, Las Vegas, NV experienced a 10% rise in unemployment rate alongside a 62% drop in housing prices, whereas Dallas, TX’s numbers were far less severe with a 4% increase in the unemployment rate and a 10% drop in housing prices. Cities that have high proportions of jobs in vulnerable sectors have also seen huge unemployment spikes during COVID-19, meaning Las Vegas and other cities like it will likely experience similar drops in housing prices again. Furthermore, cities that depend on these at-risk industries will likely experience slower job recoveries and more challenging housing markets.

 
Unison’s research ranked the 20 top cities from the S&P CoreLogic Case-Shiller 20-City Index in order of anticipated resiliency (from most resilient to least resilient): Boston, Washington D.C., New York, San Francisco, Atlanta, Minneapolis, Chicago, Cleveland, Tampa, Charlotte, Denver, Dallas, Phoenix, Los Angeles, Seattle, Portland, San Diego, Detroit, Miami and Las Vegas.

<h3>Select vulnerable cities outlined in Unison’s report include:</h3> 
 Las Vegas - With the highest concentration of construction (7.7%) and leisure & hospitality (31.8%) jobs, Las Vegas leads in at-risk sector employment share (62.6%) and is likely to see the weakest home price performance.
 Miami — Miami’s heavy concentration of leisure, hospitality, and retail jobs makes it vulnerable to shocks in discretionary spending. Partially offsetting the grim tourism outlook is the potential rebound in local commercial activities, as Florida is among the states most eager to reopen its economy. 
 Detroit — Detroit has the highest concentration (14.3%) of manufacturing jobs among the 20 metro areas explored. Synonymous with Motown, “Big-3” automakers Ford, General Motors, and Fiat Chrysler sit atop Detroit’s list of employers. 
 San Diego — San Diego is second in concentration of jobs in the leisure and hospitality industry (16.2%), behind only Las Vegas. It also has the third highest concentration of manufacturing jobs, behind Detroit and Cleveland, and is third in construction share, behind Phoenix and Las Vegas.

<h3>Select resilient cities outlined in Unison’s report include:</h3>
 Boston — Boston lists numerous prestigious universities and hospitals among its top employers, as well as some of the largest insurance and investment management companies in the world. 
 Washington D.C. — Government agencies make up close to a quarter of jobs in Washington, D.C., with more government-related jobs in law, defense contractor, non-profit organizations anchoring the employment landscape. 
 San Francisco — At first glance, San Francisco appears to be a one trick pony, since a big portion of the jobs look like “tech” jobs. Lost in the high-tech fanfare is the fact that San Francisco is the second largest financial center in the U.S. and home to firms like Wells Fargo, Visa, SoFi, and Square.
 New York — Despite its status as a major tourist destination, only 12% of New York City private sector workers are employed in the hospitality sector. New York’s economy is anchored by its world-leading financial services sector. Following close behind are robust education and healthcare systems, that actually make up more than a quarter of private sector jobs in the city. 

“Job resilience is one of the key drivers of housing demand in both the short and long-term,” said Unison CEO Thomas Sponholtz. “The owner-occupied residential real estate portfolios we construct for institutional investors are geographically diversified across markets with a limited supply of new housing units and strong demand due to high concentrations of jobs in resilient industry sectors.” 



<h3>About Unison Investment Management</h3>
Unison Investment Management is the market leader and pioneer in home co-investing, with $817 million in assets under management. Over the last 14 years we have invested in more than 7,500 homes at the equity level across metropolitan and suburban areas that have strong housing demand and limited housing supply. Unison provides institutional investors efficient, diversified access to the world’s largest asset class - owner-occupied residential real estate - while providing low correlation to traditional asset classes. We also enhance home affordability, enable retirement, reduce debt, and deliver a smarter and safer allocation of housing exposure for homeowners and investors. For additional information, visit <a href="https://www.unisonim.com" target="_blank">Unison Investment Management</a>.

<h3>About Unison</h3>
Unison is a San Francisco-based company that is pioneering a smarter, better way to own your home. Until now, the only way to finance a home was by taking on debt. Through home co-investments, we help homeowners access their equity flexibly with no monthly payments or interest. We enhance home affordability, reduce debt, and deliver a less risky way for homeowners, investors, and society to think about their most important asset - the home. For additional information, visit <a href="https://www.unison.com" target="_blank">Unison</a> or follow us on <a href="https://www.facebook.com/MyUnison/" target="_blank">FaceBook</a>, <a href="https://www.unison.com" target="_blank">Unison</a> or follow us on <a href="https://www.instagram.com/myunison/" target="_blank">Instagram</a>, <a href="https://www.linkedin.com/company/17894811/admin/" target="_blank">LinkedIn</a>, <a href="https://twitter.com/Unison" target="_blank">Twitter</a> and <a href="https://www.youtube.com/channel/UCCmPJzvS6KCqcg9GYI8PYUA">YouTube.</a>
 

<h3>Press Contact</h3>
 <a href="mailto:mediadesk@unison.com">mediadesk@unison.com</a>

New research published today by home co-investing company Unison proposes a new way of understanding the economic impact of the pandemic and the long-term effect it will have on home prices in select U.S. cities.

“Job Resilience” Can Predict Home Price Recovery, New Unison Research Says

Unison | Resilient & Vulnerable Cities

<img src="https://contentimages.o-prod.unison.com/images/im/insights/Unison_Forbes_Logo.png">

Unison is proud to share our inclusion on the 2020 Forbes Fintech 50 list, highlighting our leadership in the home co-investment space! 

 This is Forbes’ fifth annual Fintech 50 list, a ranking of the world’s most innovative financial technology companies that are disrupting the way people spend, invest and save. 

 At Unison, we are thrilled to have our hard work recognized and honored to stand alongside other highly valued companies who are driving innovative change. 

 2019 has been one of immense growth for us that only helped further demonstrate the need for home co-investment. 

<h3>Highlights include:</h3>
<ul>
 <li>Expansion into 8 new states: We opened our programs to customers in Indiana, Kansas, Kentucky, New Mexico, South Carolina, Tennessee, Utah and Wisconsin, bringing our total footprint to 30 states plus Washington DC.</li>
 
<li>Unison has partnered with over 7,500 customers, allowing many to purchase their dream homes or access their home equity in a smarter, better way.</li>

<li>We have invested in homes worth $5 billion across America, opening up the asset class of residential real estate to investors in an even bigger way than ever before.</li>
</ul>

 We look forward to an even better 2020 with a renewed commitment to our mission of enabling optimal homeownership and remaining a trusted partner for customers and partners.

Forbes released its fifth annual Fintech 50 list, a definitive ranking of the world’s most innovative financial technology companies that are changing the way people save, spend and invest. 

Unison | Forbes Fintech 50

Terrance Odean is the Rudd Family Foundation professor of finance at the Haas School of Business at the University of California, Berkeley. Odean had initially been interested in psychology, but was drawn to pursuing a Ph.D. in finance after learning that the dominant theories in finance are based on the assumption that people are hyperrational when it comes to money. That fascinated him because it’s simply not true: People have systematic biases, which makes it possible to predict the type of mistakes they'll make and when they’ll make them. 

Odean’s research into cognitive bias can help others recognize when they’re going to make financial mistakes and if those mistakes are inevitable or if they can be overcome. Here are his suggestions on how best to optimize your financial mindset:
<h3>Automate away bias</h3>
People’s tendencies are to hold on to losing investments and sell winners (known as the “disposition effect” in behavioral finance). From a tax point of view, that's suboptimal, and in many respects it doesn't work out well for people. Professionals, however, will introduce automation to remove choice from the equation. That automation might have a rule to sell a position that’s dropped 10%, which eliminates any deliberation about whether to hold or sell. 
Automation takes the choice out of what to do with money, and that means not giving yourself the option of making a financial mistake.


<h3>Recognize different types of bias</h3> 
Odean recounts the story of a brother and sister in his neighborhood who inherited their father’s house and wanted to sell it. A real estate agent told them the home was worth $400,000, so when Odean offered to buy the house for $300,000, the brother and sister told him they couldn’t take that much of a loss.

<a href="https://en.wikipedia.org/wiki/Survivorship_bias" target="_blank">Survivorship bias</a> —the mistake of ignoring failures — is another example that hits homeowners. In rapidly escalating housing markets, the tendency is to regret not buying sooner. While San Francisco homeowners may say, “I wish I’d bought a home 20 or 30 years ago,” that’s not the rule across the entire U.S. 

Homebuyers tend to think that the recent past predicts the future. But real estate, like other investments, goes both ways.

It’s important for homebuyers to realize they’re taking a financial risk, even if they are currently in a strong housing market. It’s one thing to be optimistic, but another thing to fall into “that could never happen to me” thinking.

The bottom line is that a home is as risky as an equity index.

<h3>Look at the long term</h3>

Even though homes are riskier investments than most realize, they’re also long-term investments. Be aware of the risk going in, but don’t get obsessed with looking at the variations in value. Odean tells his students to buy a well-diversified portfolio of low-cost mutual funds or index funds and don't follow it every day. In fact, he only looks at his portfolio once every year. 
 
Be aware of the risk, but don’t obsess about small movements in long-term investments.
 
<h3>Alleviate the risk</h3>

Odean recommends alleviating financial risk whenever possible, and that involves diversification. Instead of investing all of your money in the down payment for a home (which, as previously discussed, is a risky investment), utilizing a co-investment solution allows homeowners to invest some of their money in the home and divert the rest to other investments such as stocks or bonds. 
 
When it comes to buying a home, Odean advises homebuyers to see what their price range is, not based on what they want but what they can afford. Then, be sure to only look at homes within your price range. Next, get at least four quotes on a mortgage — make sure that you're comparing mortgages with all of the same fees and features — and find the best possible interest rate. 

<h3>Watch the interview</h3>

<iframe width="640" height="360" style="width:100%; height:calc(100vw/1.77777778);" src="https://www.youtube.com/embed/DWc1WMUdZoE" frameborder="0" allow="accelerometer; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>



 Dive deeper into Terrance Odean’s research on cognitive bias and learn more about mitigating the risk of homebuying by viewing the video here:

 Informational Purposes only: The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained int his blog post constitutes a solicitation, recommendation, endorsement, or offer by Unison or any third party service provider to buy or sell any securities or other financial instruments in this or in in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

VP of Research at Unison Brodie Gay sat down with Terrance Odean, the Rudd Family Foundation professor of finance at the Haas School of Business at the University of California, Berkeley, to discuss biases which influence and impact home buyer decisions.

A Berkeley Behavioral Economist’s Advice for Homebuyers

Unison | Predictable Mistakes HomeOwners Make

SAN FRANCISCO — November 18, 2019 — Unison, North America’s leading home co-investment partner, released its 2019 Responsible Investing Report last week, developing a framework to measure its investments made in 2018 against its ESG goals and policy.
 
The report outlines progress on sustainability goals and develops metrics to measure progress on these goals. Notably, the company reports that homeowners paid off $55M in other debts thanks to investments by Unison in 2018.
 
“This is why equity financing should have always been available to homeowners, as it has been for other asset classes,” said Thomas Sponholtz, CEO of Unison. “A combination of debt and equity enables homeowners to get back in control of their finances,” he said. The report notes that median FICO scores for Unison’s 2018 HomeOwner customers increased by 18 points on a sustained basis over a 3 to 6 month period. 
 
Due to lack of standardization in ESG reporting for its space, Unison leveraged research to develop metrics it believes are applicable for this industry. For example, one of the most significant factors in determining the environmental impacts of real estate is location, with urban housing reducing the fragmentation and development of greenfield areas. Accordingly, Unison cited the fact that its company made 100% of its investments in urban areas in 2018, discouraging suburban sprawl and its profound effects on environmental sustainability.
 
In addition, the report shows that 13% of Unison’s 2018 investments utilized a renewable energy source, compared with just 2.7% of US housing on which solar panels have been installed. Per the report, buyers in the US are willing to pay $15,000 more on average for homes with an average-size solar array. 
 
The reporting developed for Unison investors shows the company’s aim to take a leadership role in transparency and responsibility within its industry, while acknowledging current limitations of these initiatives. “In the development of Unison's ESG reporting we recognize the infancy of sustainability as a finance subject matter,” Unison reports. “We look forward to continuing to analyze, assess, and improve upon our sustainability measures over time.”
 
The report can be found here: <a href="https://im-static-assets.s3-us-west-2.amazonaws.com/esg/19UNIM-100221_ESG+Report_R1v10.pdf?utm_content" target="_blank">Corporate Responsibility Report</a>

First corporate responsibility report establishes clear path to impact and sets measurable sustainability metrics, demonstrating the company’s commitment to social and environmental responsibility

Unison Releases Inaugural Responsible Investing Report

SAN FRANCISCO — November 12, 2019 — Unison, North America’s leading residential real estate equity partner, announced that it is now offering the world's first Shariah-compliant home co-investment vehicle for institutional investors.
 
Unison has revolutionized the home financing industry by investing in the equity portion of owner-occupied homes. This has enabled institutional investors to efficiently access a diversified housing portfolio and gain exposure to the largest asset class in the world. At the same time, homeowners are able to gain access to liquidity and financing without increasing their indebtedness.
 
“Unison has transformed the housing industry by introducing a financing option which doesn’t increase debt, doesn’t require interest or monthly payments, and reduces overall risk to homeowners and to society,” said Thomas Sponholtz, CEO of Unison. “Unison’s investment strategy is inherently aligned with Islamic Finance, and we are excited to be able to announce that this alignment has been made official through this certification.”
 
Unison investments uniquely share in the gain or loss in home prices, rather than charging interest on the homeowner. Like the tenets of Islamic Finance, Unison’s investment philosophy has also been based in partnership and profit sharing. These features make Unison a unique form of investment which corresponds with the values of Shariah compliant and socially responsible investing.
 
“Residential real estate is the largest asset class in the world, and a powerful inflation hedge. Yet, broad exposure to the asset class has been cost prohibitive for investors, until now,” Sponholtz said. “Institutional investors and investors seeking ethical and Shariah-compliant investments can now gain efficient access to this asset class.” 
 
Unison’s residential real estate investment program was Shariah-certified by the Islamic Finance Advisory Board, a non-profit, self-regulatory, voluntary body engaged in the promotion of Islamic Finance in Canada.
 
About Unison 
Unison’s mission is to deliver a safer, more efficient, and rational allocation of housing exposure for society. It has pioneered a revolutionary innovation in home financing: offering equity financing for residential real estate to homeowners and homebuyers through its vertically integrated home co-investment platform. This enables institutional investors to diversify their portfolios with new exposure to a foundational asset class while also making a positive impact on some of the world’s largest socio-economic issues such as housing affordability, household debt, and retirement security. Unison is the dominant player in the home co-investment industry, having originated 85% of all co-investments in US homes. It has already helped almost 7,000 homeowners across 1,500+ cities in 30 states. 
Unison Investment Management offers investors scalable, efficient and diversified direct access to residential real estate equity via its open ended REIT.

Certification is a demonstration of commitment to socially responsible investing

Unison Investment Management receives Shariah accreditation for its residential real estate investment program

SAN FRANCISCO — November 7, 2019 — Unison, North America’s leading home co-investment partner, today announced it ranked third in the Bay Area and nineteenth overall nationwide on Deloitte’s Technology Fast 500, a ranking of the 500 fastest growing technology, media, telecommunications, life sciences and energy tech companies in North America. Unison currently owns 85 percent of the home co-investing market and has had an exceptional year of growth. In February 2019, the company announced 370 percent year-over-year revenue growth, 308 percent year-over-year growth in customer transactions, and $2.42 billion in total value of co-invested U.S. residential real estate ending in Q4 2018. 
 
“Both the housing market and economy have transformed over the past decade, butthe way Americans buy and own homes has not evolved with the times,” said Thomas Sponholtz, CEO of Unison. “Being named to the Deloitte Fast 500 is a great recognition of the work we are doing to bring the American dream back within reach. Unison brings technology and a culture of innovation to an industry ripe for disruption.”
 
In order to scale investments in single family home equity, Unison has pioneered a robust quantitative approach that aligns the modern needs of both consumers and institutional investors. The company’s patented Greenlight technology allows for instantaneous investment decisions based on a data-driven and backtested factor model for forecasting the price, return and volatility of most homes in America. In addition, its proprietary Equity Origination System (EOS) allows for expedited underwriting, approval and funding of deals. 
 
Deloitte’s Technology Fast 500 honors the cutting edge companies transforming the way we do business, combining innovation, entrepreneurship, and fast growth, and disrupting the technology industry.
 
"This year marks the 25th anniversary of Deloitte's Technology Fast 500, so we are especially pleased to announce and congratulate the 2019 winners," said Sandra Shirai, vice chairman, Deloitte LLP, and U.S. technology, media and telecommunications leader. "It's always inspiring to see how the Fast 500 companies are transforming business and the world we live and work in."
 
About Unison 
Unison’s mission is to deliver a safer, more efficient, and rational allocation of housing exposure for society. It has pioneered a revolutionary innovation in home financing: offering equity financing for residential real estate to homeowners and homebuyers through its vertically integrated home co-investment platform. This enables institutional investors to diversify their portfolios with new exposure to a foundational asset class while also making a positive impact on some of the world’s largest socio-economic issues such as housing affordability, household debt, and retirement security. Unison is the dominant player in the home co-investment industry, having originated 85% of all co-investments in US homes. It has already helped almost 7,000 homeowners across 1,500+ cities in 30 states. 
Unison Investment Management offers investors scalable, efficient and diversified direct access to residential real estate equity via its open ended REIT.
 

About Deloitte’s 2019 Technology Fast 500™
 
The Deloitte Technology Fast 500 is one of the most objective rankings for technology, media, telecommunications, life sciences, and energy tech companies. 
 
It was created to recognize the effort and dedication of the fastest-growing technology companies—both public and private—in North America.

Win highlights the growth and adoption of the Unison product

Unison Named to Deloitte’s 2019 Technology Fast 500™, Recognized as One of the Fastest Growing Companies in North America

Unison Named to Deloitte’s 2019 Technology Fast 500

May 30, 2019 — The Canadian Investment Review recently interviewed Rayan Rafay, who oversees Unison’s investment management business, for an article about home co-investing.

<a href="http://www.investmentreview.com/news/a-look-at-co-investing-in-residential-real-estate-9516">Read the full article here.</a>

Notes institutional investors can gain exposure to residential real estate using a co-investment model which provides pure inflation exposure

Canadian Investment Review Features Rayan Rafay

INSIGHT

Back to School: A New Look at College Town Home Price Appreciation

Housing Market Commentary Update

Housing Market Commentary Update

Home Prices: Soft Landing with Rebound Incoming

January Job Report Exceeds Expectations

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Research

2023 Home Equity Report

Insight

Housing Market Commentary Update

Research

1970s: The Case of the Missing Homes

Announcement

Unison Announces First DBRS Rated Securitization of $202 Million of Unison Home ...

Announcement

Unison CEO Thomas Sponholtz Announced as One of Inman’s '2023 Best of Proptech'

Research

Single-Family Rentals, Unison Equity Sharing Agreements, & the Case For a Divers...

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