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Another way to stop the downward slide in home prices

Posted by Scott Van Voorhis August 2, 2010 07:00 AM

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OK, most of the regulars on this blog are ready throw rotten tomatoes at me right now.

The problem is housing prices are still far too high - bring them down some more. I know, I can hear you furiously typing away already.

It's hard to argue with that here in Greater Boston.

Still, I can't also fathom how a complete collapse in the real estate market - potentially leading to a double dip recession - is great either.

Frankly, I am torn. But if Congress is ever motivated to dabble in the real estate market again, let's hope they try something different than the disastrous home buyer tax credit, which has created the latest mess we are in.

On that score, I dusted off an old proposal that Barry Bluestone, the Northeastern University economist, put out in early 2009.

And as we are right back to the bad old days, with sales having fallen off a cliff with the end of the tax credit in April, it is an idea that is worth looking at once again.

Bluestone's Uncle Sam Insurance Plan calls upon the federal government to issue an unusual guarantee to home buyers. If you jump into the market anytime over the next 18 months, the government will make sure you are made whole, even if housing prices drop.

The government would agree to cover up to 85 percent of any loss the home buyer might experience in the years ahead when it comes time to resell. The amount would be capped at $100,000.

The beauty of this approach is that it would encourage home buyers, many now already expecting a double dip in home prices, to jump in now. Like the tax credit, the insurance offer would have a limited life span - if you miss the 18 month window you miss the boat.

Of course, by bringing more buyers into the market, prices will stabilize, taking the government off the hook for huge payments and encouraging more buyers to step in, or so Bluestone's theory goes.

If not, we could be in for payments ranging from $9 billion to as much as $30 billion in a worst case scenario, he writes.

But right now, that's chump change in Washington, which just blew $18 billion on the home buyer tax credit, probably one of the worst expenditures in recent years given the results.

As they say, desperate times call for desperate measures.

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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About boston real estate now
Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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