Products that protect the value of homes in an uncertain market are springing up to help wary homeowners cope with potential price depreciation.
"The financial impact of the loss of equity has been devastating, both to the national economy and to millions of homeowners who rely upon their home's equity to finance their next home purchase or their retirement," Scott Ryles, CEO of Home Value Insurance Co., said at the National Association of Real Estate Editors National Conference in Denver last week. "Clearly the days when housing was a safe investment are over."
Ryles said "almost anyone" who has purchased a home in the last nine years has lost money, and those that bought homes between 2004 and 2008 "lost almost all of their equity, if not all of their equity."
And while Ryles said the national market may seem more stable, local markets continue to fluctuate leaving homeowners concerned about entering the market.
On a local level, Ryles said population shifts will be a major factor in driving house prices down. Baby boomers who have not adequately saved for retirement will be forced to sell their homes to cover expenses, and new household creation is not adequate enough to absorb the houses on the market.
"Homeowners and today's homebuyers cannot safely assume their home's value will appreciate," he said.
Still, the National Association of Realtors reported some recent thawing on prices. The national median existing-home price for all housing types rose 10.1% to $177,400 in April from April 2011, and the March price showed an upwardly revised 3.1% annual improvement.
CoreLogic (CLGX) reported that home prices nationwide increased a slight 1.1% in April over the year-ago period, making it the second year-over-year increase in 2012.
Ryles said his company's product, called Home Value Protection, provides insurance against declining home values. Customers are able to get insured based on the current price of their home, and their monthly fee is based on that value. If their home value has declined when they sell their home to a third party, Home Value Protection will pay out the difference. The product is only available in Arizona, Georgia, Indiana, Oklahoma and Ohio, though the company plans to expand.
Ryles said these states are suffering from continuing decline in prices, and homeowners have experienced an average loss in value of $5,507 since taking out their policy. Georgia has been the worst hit, with an average decline in home value of almost $12,000 among policyholders with a loss.
Ryles said Home Value Protection is the only home protection insurance product. But it's not the only product on the market protecting against depreciating home values.
Equity Lock Solutions has a product called Home Price Protection, but it is a financial company backed by a re-insurance company that guarantees its claims.
Regardless of how homeowners choose to protect themselves against depreciating values, Fran Yeddis, director of Realtor relations for Equity Lock Solutions, said protection is needed "to return homebuyers' confidence in real estate and homeownership by protecting their investment over the next 15 years."
Equity Lock's Home Price Protection is a 15-year product that terminates at sale, but customers can renew if they stay in the home longer. Depreciation is calcuated through the Federal Housing Finance Agency's home price index and not on the sale price, and is paid based on percentage of decline in the index from time of contract to home sale date.
"I could not have predicted the last 15 years, and I certainly cannot predict the next 15 years; therefore, HPP gives protection in what we all know is a volatile and uncertain real estate market," she said.