A Boston-based economist believes America’s housing market hasn’t yet found bottom, and a federal equity insurance program for homebuyers will provide the "nudge" needed for a quicker economic recovery.

Barry Bluestone, director of the Dukakis Center for Urban and Regional Policy, said unemployment and property values are lower than even the most pessimistic projections. Fears that a bottom has yet to be reached still has a firm hold on the housing market, and something must be done to yank potential homebuyers off the sidelines and get things moving.

"They’re waiting [to buy and sell], and that’s the key," said Bluestone. "Unless you can break that psychology, we’re going to have a very sluggish market. We need one more major nudge to repair the housing market."

In a presentation to the Commonwealth Housing Task Force on Friday, Bluestone outlined a limited equity insurance program that would protect homebuyers from further declines in property values. The federal government would protect against value declines up to 85 percent for the first million homebuyers who buy homes in the next 18 months.

The insurance would cover losses up to $100,000, provided that the purchaser held on to the home for three years.
The plan is the brainchild of several members of the Commonwealth Housing Task Force, Bluestone said.

Bluestone predicted that in the worst-case scenario, based on the guidelines the U.S. Treasury Department used for the recent big bank stress test, the government would be liable for $9.86 billion.

"This is more than a housing program, it’s a recession prevention program," Bluestone said. "The right kind of nudge at the right time creates a kind of jujitsu, where a little bit of effort creates a great deal of power."

Bluestone said the team presented the plan to Rep. Barney Frank’s office earlier this week, and the congressman is being briefed on the details. Frank, a Democrat from Massachusetts’ fourth Congressional district, is chairman of the House Financial Services Committee.