A futures market for housing prices

Posted by: Dean Foust on December 19, 2005

If you’ve bought a house in a bubbly urban market and are suddenly fearful of losing a big chunk of your nest egg if prices fall, what do you do? While stock investors have long been able to hedge their bets by taking short positions, homeowners were simply left to sweat. Until now.

Come April, the venerable Chicago Mercantile Exchange will launch trading in U.S. home prices by allowing investors “to trade in housing-price futures based on the median home price in each of 10 U.S. cities,” according to this article.
Between now and then, there are a few other avenues for betting on housing prices. One is HedgeStreet.com, a Web site that lets you bet on housing trends in six markets. The contracts, which are three- and six-months in duration, are benchmarked against the National Assn. of Realtors reported Median Sales Price of Existing Single-Family Homes in Chicago, LA, Miami, NY, San Diego and San Francisco.
Given the recent softness in these markets, seems it would be much harder to get anyone to take the other side of the bet (i.e., wager that prices in those markets are going UP in the coming months.)

I’m no expert at derivatives, so I have no idea the kind of bet you’re making for a bet on declining prices to actually net you a meaningful return. so I’d invite anyone who is to take a gander at the HedgeStreet site and report back as to the current bet that you’d have to be willing to make on further price declines, because it strikes me the easy money has been made here. Anyone willing to report back?

 

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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