Unison: Your Home Has a ~30% Chance of Being Worth Less in 5 Years

Unison is a “home co-investment” start-up, which means it wants a share of the equity of your home. If your home value goes up, then it wants some of the gain. If your home value drops, then it will absorb some of the loss. In exchange, the benefit to the homeowner is either an increased upfront home downpayment or the ability to cash out your home equity with no monthly payments. Unison is betting that over the long-term, your home value will go up and they will profit when you eventually sell (or when 30 years is up). In addition, they charge a one-time transaction fee at the time of closing (2.5% of proceeds) or at home-equity cash-out (3.9% of proceeds).

That’s the basic idea, although they aren’t technically a co-owner of your home. The arrangement is structured as an options contract with a secured lien on your home, as laid out here (click to enlarge):

Unison’s business model depends on home prices going up over time in a reasonably-predictable manner, so they’ve done some research about the reliability of rising home prices. Using their data, Felix Salmon at Axios created this volatility chart that illustrates their conclusion that home price volatility is roughly the same order as S&P 500 volatility:

I don’t know if the average consumer really understands what “20% volatility” means (I don’t), so this statement is much more meaningful:

Any given home has roughly a 30% chance of ending up being worth less in five years’ time than it is today. If you can’t afford that to happen, you probably shouldn’t buy.

That’s an interesting statistic to keep in your head. Of course, it also means that you have a 70% chance of having your home price increase in 5 years, which is probably why many experts recommend that you expect to stay in your house for at least 5-7 years before buying. The odds are in your favor, but not overwhelmingly over a 5-year period.

Bottom line. I predict Unison will become successful, as long as they have patient sources of funding. Customers get a much bigger home downpayment upfront, and the payback is not until later and only taken out of profits (less pain). That’s a pretty brilliant idea in the context of behavioral finance. As a homeowner, you are paying a fee to sell off a piece of future upside (or downside) potential, but anything that makes it possible for people to buy a nicer house now is going to be popular.

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