Hedge around your Home With Futures Contracts

The Financial Times reports:

Familiarity aside, the launch of housing products has been held back by the absence of a reliable measure of house price movements. The CME products will be based on the Case-Shiller indices, developed by two economists in the 1980s and revised to provide a monthly benchmark of pricing in 10 US metro markets, as well as a national composite.

Robert Shiller, the Yale economist and expert in behavioural finance, found fame with his book Irrational Exuberance, which came out just before the collapse of the internet stock bubble in early 2000. Perhaps worryingly, he is now in the “bear” camp on housing.

The CME will offer futures and options based on house prices in New York, as well as Washington, Boston, Miami, Chicago, Denver, Los Angeles and San Francisco. Las Vegas and San Diego, two of the hottest real estate markets over the past two years and the source of feverish discounting by some new-home builders, are also included, and could create volatility.

Anyone interesting in hedging their house should read this one.