The Swami and Home Equity Insurance

By John McGory

A new wrinkle in the real estate world is the home equity insurance programs being promoted by Home Value Protection and other insurers.  The Real Estate Swami says all should move carefully when considering such policies.

The equity insurance programs are aimed at protecting homeowners from steep drops in the value of their home.   

Here is how it works.  Insurance buyers pay a monthly premium.  The insured will collect on the policy if both of the following happen.  One, the house sells for less than the value determined on the policy.  And two, homes throughout the area have dropped overall according to a national home price index. 

So if your home drops 20 percent but the overall market only drops two percent, then the policy will pay you two percent of your losses, not 20 percent. 

The Real Estate Swami says there are several considerations to keep in mind if you are considering purchasing a home equity insurance policy.

“In the past five years local home prices have dropped 11 percent.  It is likely we are near the bottom since little new housing stock is being added to the market.  Also, home equity insurers targeted central Ohio because of stable home prices.  While certain neighborhoods may continue to suffer, it is unlikely our regional price index will drop another 11 percent,” says the Swami.  “Keep in mind your payment is based on the percent drop of the entire market, not your individual home.”

The Swami says if the entire market does drop another 11 percent in the coming years, then the chances of the home equity insurance companies surviving would be slim. The best advice is to continue to try and build equity in your home.

“Pay yourself,” counsels the Swami.  “Reducing the principle on your loan each month by paying a little extra will put you in a better position when you sell than most insurance policies.”

John McGory is a licensed real estate agent in central Ohio.  He is also a partner in Webface, a content marketing company.  Get more information at www.web-face-solutions.com

Central Ohio Real Estate Is Not Normal

By John McGory

A national real estate expert came to Columbus this week to tell us that the real estate market is close to normal again.  The Real Estate Swami says statistics can be deceiving.

Ted Jones, chief economist for Stewart Title, came to town to present his real estate forecast to the Columbus Board of Realtors, Building Industry Association and Columbus Mortgage Bankers.

The Real Estate Swami was there to listen to the Houston, Texas native.  The main thrust of Jones’ speech was we are back to 2002 sales levels and that is as good as it is going to get.  The bubble years from 2003 to 2009 are but a fond memory.   

Swami believes that the evidence in the streets of central Ohio is that while we are improving we have a ways to go before we see a “normal” real estate market.

“There is evidence that the housing market is gaining strength.  But to say this is normal is either a sign of the apocalypse or someone with little faith in the central Ohio housing market,” says the swami.

The swami points to a robust 1990s market with strong residential and commercial building as more typical of a normal central Ohio real estate market.  Those days will return as the economy continues to strengthen and job creation increases.

The central Ohio job market is still down 35,000 jobs from its peak in February 2008.  We have picked up 5,000 jobs in the last 12 months, including a 3,700-job uptick in November 2011.

“Columbus and central Ohio have always been considered the poor stepchildren from real estate experts around the country,” remarks the swami.  “But our market can do much better and will do so in the coming years if we continue to get strong local leadership from business and government.”

The swami did agree with Jones that one group that needs to be encouraged that real estate is a good investment are young adults.

“Renting gives the young the illusion of freedom.  That all is possible if you are not tied down to a property,” he says.  “But we must remember that they have grown up in the worst of real estate times.  The young will soon see that ownership is true freedom.”  

John McGory is a partner at Webface (http://www.web-face-solutions.com/), a content marketing company in central Ohio, and is a licensed real estate agent.

A Great Shadow of Burden

By John McGory

“It is said that hope is like the sun, which, as we journey toward it, casts the shadow of our burden behind us.” Samuel Smiles

Real estate continues to have a great shadow of burden in front of it as it struggles to recover.  The Real Estate Swami quotes Standard and Poor’s recent report that shows a shadow inventory of four to five million houses in the U.S.  Shadow inventory are homes either owned by the bank or in some stage of foreclosure.

“What holds us back from a robust real estate market are the many houses owned by the banks.  If they were to release them all at once the real estate market would crumble,” says the Real Estate Swami.  “Slowly they will come off the books and our shadow of burden will be behind us.”

The S & P report shows there has been some improvement this year on whittling down the shadow inventory.  A 52-month supply of houses existed in the first quarter of 2011, dropping to 47 months in the second quarter. 

There is much debate on how long our shadow inventory will slow down the real estate market.  The local economies across our nation will determine how quickly these inventories disappear.  Central Ohio is seeing some strength return to its economy.  Housing sales jumped 23 percent in July.

The Real Estate Swami says to keep an eye on new job creation as a sign on where the central Ohio housing market is heading.

“Many home owners want to sell but are waiting on the sidelines for house prices to increase.  Supply will continue to exceed demand so any increase in price will be gradual.   As our local economy adds new jobs our shadow will shrink as we move toward a rising sun.”

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