Home Equity Insurance

Abstract

The authors propose home equity insurance, insurance that protects homeowners against declines in the market value of their homes. Such insurance resembles both ordinary homeowners insurance and also financial hedging vehicles. One form of home equity insurance is pass-through futures and options, so that the insurance company acts as a retailer of short positions in traditional hedging vehicles. Another form is life-event-triggered insurance, that pays the homeonwer if there is a sufficient decline in real estate prices and if also a specified life event (such as a move beyond a certain geographical distance) occurs. The authors derive break-even insurance premia based on models of Los Angeles housing prices estimated with data from 1971-1991.

Note: This is a description of the paper and is not the actual abstract.

JEL Classification: G1