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Real Estate Market Commentary - January 2012
by Peter L. Zachary, MAI, MRICS

Commentary on the Real Estate Market as of January 2012 By Peter L. Zachary, MAI, MRICS

Not much happened in the month of January, except there was an Op Ed article in the New York Times on January 25, 2012 entitled "A Way to Make People Buy Homes Again". It was written by James A. Wilcox and the gist of the article was "the government should offer insurance against a decline in prices". He calls it "down payment protection" and says:

"Here's how down-payment could work. Homebuyers could purchase protection from the government for a one-time fee, say 1 percent of the house purchase price, or $2,000 on a house selling for $200,000. The fee could vary with the risk of house price declines in each area. The plan would be open to all buyers.

At the end of three years, the government would automatically mail checks to protected homeowners if average house prices in their area were lower than when they purchased their homes. (No decline, no check - just like auto insurance.)

Or, the payment might be applied to the mortgage to reduce the balance due. Declines would be based on the government's house-price indexes for nearly 400 areas in the country. Either way, without selling their homes, at the end of the third year homebuyers would be quickly and fully compensated for any loss of equity, up to the amount of their down payment.

Having the government offer not just mortgage insurance to protect lenders, but also down-payment protection for homebuyers, could increase demand. A stronger housing sector in turn improves business for those who provide related services and products, which would create more jobs."

This is a novel approach to equity ownership. After all, there is something called PMI "Private Mortgage Insurance" (PMI) where an insurance company will insure the top 10% or so of the loan. I guess you can call this"Equity Insurance".

It sounds good but I think the implementation of this"protection" would be difficult.

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