Home equity protection or home price protection generally comes in the form of an agreement that pays the homeowner if a particular home price index declines (your home or investment property drops/declines in value) in value over a period of time after the protection is purchased. The protection is for a new or existing homeowner that wishes to protect the value of their home or investment property from future market declines.
The protection afforded is designed to alleviate the risk of future negative real estate price movement. We may see developers offering home price protection as an incentive to purchase the home or investment property.
Don’t be surprised if Realtors, real estate brokers, mortgage brokers and title companies all begin to adopt the use of home price protection to facilitate the underlying home purchase.
Anthony Simon, founder of RealEstateInfo.com.au says, “I believe there is a strong advantage when both parties to the home transaction share in the cost of the protection; generally the home seller will use a portion of the home proceeds to pay for the protection at settlement”.
Equity Protect is not new overseas. The housing market seems to be responding and the protection is now available in Australia.
The term first entered the mainstream in 2002 as several scholars at Yale University worked in conjunction with a program in Syracuse, NY, which was developed with the intent of increasing home ownership in neighbourhoods on the verge of collapse that were marred by ever declining home prices. The Syracuse non-profit program, called Home HeadQuarters, was sponsored by the Syracuse Neighborhood Initiative, and a homeowner could protect the value of their home for a one-time fee of 2-3.5%% of the home’s value. In many cases, a local organization would pay the fee for the homeowner if they agreed to live in the home for 3 years. Similar programs were developed in other municipalities to encourage home ownership in specific areas that were considered to be at risk of losing home value due to increased rental conversions and other factors.
On December 4, 2008 at the height of the real estate crisis Federal Reserve Chairman in the USA, Ben Bernanke suggested that what the real estate market needed to recover was a hedge to restore confidence. In response to a reporters question about why the government does not provide such a guarantee he responded that the private sector was best suited to providing the solution of home price protection. The protection that Mr. Bernanke called for is now available (globally).
Current prices range from 2-4% of the home value.
Waiting periods are required in many of the programs to prevent the owner of the home price protection agreement from gaming the system. Generally the program requires lockout periods of 2 years.
For those caught out and have experienced massive price drops in mining town in Australia, could have locked in the equity with Equity Protect. Flood effected locations of Queensland that have adversely impacted price values could have safe guarded their home or investment equity if they were in an Equity Protect program.
This article was originally published on http://realestateinfo.com.au/blog/page/2/