Anyone thinking of buying one of these policies should first assess the risk of price declines in the local market. The deepest losses have generally hit areas that saw the biggest price gains in the middle of the decade. You can study the market with data from sources like Zillow.com. Talking to real estate agents can be helpful as well, but keep in mind they have a financial incentive to say prices will go up, not down.
Nationally, home prices have fallen about 30% from their peak in the summer of 2006, according to the S&P/Case-Shiller Home Price Indices. Prices are now about where they were in the summer of 2003. The index, covering the 20 largest markets, shows prices have been rising since spring, though that’s not true everywhere.
That makes the month-to-month insurance option the most appealing. The $5,600 lump-sum payment in the example equals about five years worth of $90 monthly payments. History shows it is very unlikely that home prices will fall over any five-year period, so it may not be necessary to have coverage for that long. Coverage for the next two or three years might be good enough.
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