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This development has gotten very little ink (in fact the only publicly accessible story I could turn up on it was this one from last June) but the Chicago Mercantile Exchange quietly began trading futures contracts on home resale values last May. The contracts are based on the Standard & Poor’s Case-Shiller Metro Area House Price indexes, which track price changes of existing homes in 10 major metro markets. I’m no financial planner, but sounds like it would be perfect for an individual who, thanks to the bubble, has too much of their wealth tied up in housing, or an individual who bought it at the peak of the market and is now terrified that a downturn could leave them upside down.
Not sure that futures are for the small investor, but you could imagine that this could lead the financial wizards of Wall Street to start creating Exchange Traded Funds based on the Case-Shiller index. Of course that could take a couple more years and might end up being too late for homeowners who ride the market back down again.
Are any readers of this blog more literate in futures than I am? If so, I’d invite you to spend some time on the CME web site and share what the current trading prices of these options tell us about the prevailing mood on housing prices.
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.