A way to hedge against falling home prices

Posted by: Dean Foust on August 1, 2005

My colleague Peter Coy offered a novel way to hedge against a collapse in housing prices (see below). There’s another way: There’s an online futures exchange, HedgeStreet.com, that allows you to bet on the direction of housing prices in six U.S. cities: New York, Los Angeles, Miami, Chicago, San Diego and San Francisco (the site is a real-working futures exchange, regulated by the Commodity Futures Trading Commission). How? You buy or sell small futures contracts (called hedgelets) that effectively allow you to bet that housing prices in one of the six markets will fall—or rise further, if you care to bet that way—over the next three to six months. So someone living in, say, San Diego, could buy these contracts as a way to offset any loss in value they incur in their own home. Only problems is the short nature of the contracts. It could get expensive real quick to continue renewing your contracts if home prices continue to remain strong. But that’s the beauty of speculating, right?

Reader Comments

Ethan

May 15, 2006 12:36 AM

Looks to me like Hedgestreet is not offering hedgelets related to real estate proces at this time... They list them on the website, but i fyou click there are none available. Perhaps there is no one to buy the upside?

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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