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INSURANCE AGAINST HOME PRICE DEPRECIATION - An Idea Whose Time Has Come?

EQUITY INSURANCE WOULD COMPENSATE HOMEOWNERS SHOULD PROPERTY VALUES TUMBLE - TO A CERTAIN POINT!

Potential Home Buyers sitting on the fence!  Have you seen it?

We in the Real Estate Business have - time and time again, over the past couple of years.  Many prospective buyers - even those with strong credit credentials and handsome down payments - have sat on the sidelines recently expecting even further, deeper home price fall-offs.

As summarized in Mary Umberger's Chicago Tribune column this past Sunday, there is strong basis for their behavior.  According to the Illinois Association of Realtors, between the widely-regarded Chicago Metro Area Market Peak in late 2005, and January 31, 2009, the median-priced Chicago Area Home has tumbled over 48% - from $274,716 just over three years ago, to $185,000 today!

And price reductions create snowball into bigger price reductions - and unsold inventory continues to build.

However, Joe Hanauer - Chairman of Move, Inc., which operates the successful Realtor.com consumer listing site for the National Association of Realtors proposes another solution.  He likes he idea of creating an "Insurance Policy" to protect homebuyers against possible loss of equity during a housing downturn.

Hanauer's idea would involve the Federal Government by necessity, he feels.  In his opinion, only The Fed has enough muscle and resources to adequately capitalize such a program on a grand scale.

The Insurance Premium would run between 1 and 3 percent of a home's purchase price.  It would pay the seller if the home sold at a loss after a minimum period of ownership of three years.  Maximum equity loss coverage would be 10%.  If the home sells at a profit, however, the Fed would receive back a portion of the profit - amount, TBD!

He estimates the cost of the plan to U.S. Taxpayers to be as much as $150 Billion, depending upon the balance of public-private participation, as well as the rate of overall home equity loss during an economic downturn.

One private company - Utah-based Equity Lock - began testing its own Equity Insurance Program with a Keller Williams Market Center in St. Charles IL earlier this year - with unclear results thus far.  Indeed, several factors, including future employment prospects and new, tighter loan underwriting standards, play key roles in determining the likely purchase behavior of home buyers, in the opinion of Steven Senter of Keller Williams Fox Valley Realty, as quoted in Umberger's column.

Further, the Fed might still be cool on a government-sponsored equity insurance program.  Last December, Federal Reserve Board Chairman Ben Bernanke dismissed the program as way too costly.  But, as the housing market has continued to deteriorate in many parts of the Chicago area, and in other market areas nationwide, is it time to rethink the government's position?

DEAN MOSS & DEAN'S TEAM CHICAGO

Posted: Sunday, March 08, 2009 10:50 PM by Dean's Team

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