You bet your house: Home price futures are coming

One of my clients sent me this article today from USA Today about a the beginning of a new trading category for home price futures.

"The Chicago Mercantile Exchange, a financial marketplace dealing in the value of everything from interest rates and foreign currencies to pork bellies, has committed to offer trading next year in a category many consumers take personally: U.S. home prices. Housing-price futures, based on the median home price in each of 10 U.S. cities, aren't being tailored for individual homeowners. But they may provide some protection for mortgage companies, home builders and anyone else with a large stake in residential real estate if housing values slide — while giving other investors a way into a lucrative market."

"Investors will be able to trade contracts electronically based on median home prices in Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco or Washington D.C. — or a composite index of the ten cities. The indexes were developed by the real estate research firm Fiserv Case Shiller Weiss"

"Those who are optimistic that prices will continue their double-digit rise can buy contracts, making a profit if the increase exceeds their costs by the expiration date. Investors who want to soften the potential blow of a decline, on the other hand, can buy versions of the contracts called put options that will pay them money if the price drops, ensuring that they recoup some of their lost house profits."

I suppose since they are already trading in weather futures, it was only 'logical' that housing would be next, right?

Thanks, Brett, for sending this one over!