Home price insurance program

Would you be intersted in an insurance plan that would cover you if the price of your house went down?

Northeastern University dean Barry Bluestone has come out in favor of an interesting type of proposed stimulus program to jumpstart the real estate market: he wants the federal government to sell insurance to home buyers that would protect them from any further drops in the market. The result, he hopes, would be renewed confidence in real estate, helping to stableize prices as we wait for a recovery.

Bluestone’s idea is that home buyers would pay a $500 premium to the U.S. Treasury at the time of purchase. The Treasury would then guarantee that the buyers would get back at least their purchase price when they sell. If the market recovers over the next three years or so, as many expect, there would be little risk to the federal budget. On the other hand if the home market completely tanks again — say it drops another 22% from today’s low levels, he estimates the government’s exposure to be no more than $10 billion, worst case scenario.

Dean Bluestone deserves credit for backing an interesting and forthright proposal devoid of the usual gobbledygook emamating from academic and government haunts. But, as with anything, there could be drawbacks.

First, one of the few benefits to the real estate crash is that it creates a rare opportunity for first-time buyers. But how many of these newbies are going to be excited about forking over yet another $500 fee at the closing, where they are already being socked with a dizzying amount of spurious charges?

Another problem is the Black Swan syndrome — people, including the supposed experts, are notorious for underestimating just how bad a worst case scenario can be. Which is how we got in this mess in the first place.

The proposal also has various provisions that try to keep it from benefitting real estate speculators. However, bankruptcy and foreclosure-ridden towns like Lawrence, Haverhill and Methuen have a large stock of multi family residences, and most every potential buyer of one is a speculator — err, investor, on some level. Rental housing is important too, and like it or not, “investors” provide the bulk of it.

You can’t sign up for this program now, it’s just an idea in the planning stages, but you can read about it here.


By Doug Beaton

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