Home prices fall again; agencies offer product that pays if house's value is lower when it's resold

This home on Iroquois Avenue in Egg Harbor Township sold for $221,000 in November, which was approximately the median price for homes selling in the region in the fourth quarter, according to the long-running National Association of Realtors survey.

Home prices continued to decline nationwide and in the region in the fourth quarter, even as sales grew at nearly 6 percent to an annual rate of 4.4 million single-family homes and condos, the latest figures from the National Association of Realtors show.

In the Atlantic, Cape May and Cumberland counties region, the median home price in the fourth quarter was down 7.4 percent from a year ago to $220,600 - but unchanged from the prior quarter.

That was a steeper price drop than the 4.2 percent decline nationwide and the 4.6 percent seen in the Northeast.

In response to the continued price declines and future uncertainty, Keller Williams Realty Atlantic Shore in Northfield and other agencies have started offering a product to pay homeowners the difference if their house loses value over a period of time.

Bill Wagner, operating principal for Keller Williams, said his agency has started encouraging home sellers to offer buyers Home Price Protection through EquityLock Solutions, based in Denver.

"This should remove the fear of buying now for many home buyers who have been waiting," Wagner said. "If they buy a home and want to sell in four or five years, and if the value of the house has dropped 5 percent, they'll get a check for 5 percent of what they paid."

Wagner said he's requiring all of his agents to encourage home sellers to include Home Price Protection as part of their offering, picking up the cost of 1.5 percent to 3 percent of the price of the house.

He said he expects the equity warranty to motivate potential home buyers sitting in the fence, and he expects other real estate brokers to start offering similar protections.

Ted Rusinoff, president of EquityLock, said he wasn't surprised that Wagner's agency picked up the product. "Every Keller Williams agent in Utah is using it."

Rusinoff said a Re/Max agency in Marlton became interested in Home Price Protection last year and has been helping that company's offices throughout the region become familiar with it and offer it.

EquityLock started offering its primary product in April 2011, he said, after about two years of development.

The data series used to determine changes in local home prices is the House Price Index of the Federal Housing Finance Agency.

The beginning housing value is set when the contract is taken out by a home buyer or an existing home owner. The ending housing value is taken as of the closing date of the sale of the home.

For example, the FHFA estimates that an Atlantic County home purchased for $200,000 in the second quarter of 2007 was worth $156,106 in the third quarter of 2011. If that house were covered by Home Price Protection and sold in the third quarter last year, the owner would receive a check for $43,894, covering the decline in the owner's equity.

Wagner pointed out that even if the covered house sells for more than its purchase price, the owner would still be paid if the FHFA index shows a decline in value for the time period and location.

Rusinoff said EquityLock ran simulations of its price protection model through the years of the housing bubble and bust to make sure it would be able to pay all claims regardless of real estate market swings.

He said EquityLock set up an insurance company in the District of Columbia, reviewed and approved by regulators, to backstop the equity protection contracts.

"There wasn't anybody in the market interested in the risk because it's a new area," Rusinoff said. "Established insurers want a loss history and a track record before entering a market."

The Home Price Protection product is spreading as home prices keep falling and potential buyers keep delaying purchases until they're more certain that a market bottom has been reached.

"We've got a lot of buyers just waiting in the wings, waiting for the prices to go down," Wagner said.

A similar price decline to that in the Realtors data was reported by Prudential Fox & Roach, whose HomExpert Market Report showed median home prices in Atlantic County down 5.9 percent for 2011 from the year before.

The Realtors said that distressed sales still accounted for 30 percent of all U.S. home sales in the fourth quarter, down slightly from 34 percent a year earlier. Such short sales and foreclosures artificially depress home prices, said Lawrence Yun, Realtor chief economist, especially in areas of the country where job growth is weak.

The fourth quarter declines in the region followed a 3.8 percent year-over-year drop in Atlantic, Cape and Cumberland counties prices in the third quarter for a median-priced home - one in which half the sales recorded by the Realtors were higher, and half lower.

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