Home Equity Risk Analysis

Helping homeowners understand the risk of buying a home. Used Federal housing agency data, GARCH framework to develop a Value at Risk model, for estimating losses to home equity on a city basis.

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Inspiration

Home-equity contributes the largest portion of American's net worth (70%)- so it is important to understand how this is impacted by unstable markets.

My Aunt was trying to buy a new house in Marietta and had difficulty understanding how risky the purchase was. There are almost no tools available online to forecast your future home value in the next quarter or year.

I want to help her and other home-buyers to better understand their risks before making one of the most important purchases of their life.

Prices of homes have risen by over 20% in the last year- however, many people are still willing to take on debt to buy a home. However, rapid increases in price, don't necessitate future performance. The more volatility there is, the greater the potential downswings can be.

If the downswings are very bad, one may have more debt than equity. This could impact millions of Americans since most of our wealth is in home equity.

The app helps homeowners make informed decisions on buying a home in speculative markets.

What it does

One inputs the value of their home, mortgage, and location- and the model estimates different probabilities of home value loss and if one will have a positive home equity given the data input.

Uses a Value at Risk, GARCH model, with Federal Housing Administration data to analyze house price risk for new home buyers!

The model is location specific, so Value at Risks are different for every housing market. A Miami home buyer will have a greater risk than a Iowa one.

How we built it

R and shiny apps. Lots of Government data!

Challenges we ran into

Initially tried to build a portfolio management tool in React. Completely restarted at 1 am and built a new app in Rstudio- a platform I am more familiar with.

It was a solo project- so lots of individual coding.

Accomplishments that we're proud of

Finishing at 8:00 am

What we learned

There is a great deal of variance between housing price volatility between cities- so national trends may be different than local ones!

Also R is good.

What's next for Home Equity Risk Analysis

Including tools to recommend ways to hedge risks on home equity. This may include recommending interest rate derivatives or other financial products/ etfs that have negative correlation with housing prices.

Built With

  • r
  • shiny
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