| Shared Appreciation Mortgages Come to America! |
| Written by Bill Russell | |
| 05.23.2007 | |
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Discuss this article on the forums. (0 posts) Business Week’s Hot Property blog on May 17 pointed me towards some news I was happy to hear. A company in the US, REX & Co., is now offering a form of Shared Appreciation Mortgage to the US public. A shared appreciation mortgage lets you sell a percentage of your home’s future appreciation (or depreciation) to a third party for cash. Having this option is good for everybody involved.  To homeowners and buyers, the benefits are multiple. It lets new homebuyers exchange some future appreciation earnings for cash up front, which can be used to add to the down payment, and lower the monthly payments of owning the home, making homeownership more affordable. For people who already own homes, being able to sell a portion of their future appreciation allows them to take money out of real estate, and diversify it into other investments (reducing their risk from having the bulk of their assets tied to their home) or pay for other big expenses like college. Retired homeowners can cash in on their future appreciation and use the money to enhance their standard of living, while continuing to live in the same home. For investors, the ability to buy portfolios of appreciating homes across the county creates a new class of assets. Real estate has historically yielded high returns that have been largely uncorrelated with returns on other assets, potentially providing a substantial hedge for investors. In addition, if portfolios of home appreciation become a tradable commodity, homeowners across the country could hedge their risk from homeownership using these instruments. The idea of some sort of shared appreciation mortgage has been around for years, and I have read much about them. A prominent group of economists wrote a well received book on the subject in 1997, and an Australian think tank exhaustively examined the subject in 2003. As an economist, I have rarely come across such a truly win-win idea that nobody has run with, and am mystified why this market hasn’t taken off. REX & Co. are, to my knowledge, the only ones selling them right now, but I hope for everyone’s sake they make a lot of money, and thus encourage others to enter this market. 
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