Real estate futures

May 12th, 2006 | by User Imagembhunter |

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I had to scratch my head on this one:

Place your bets — on home prices

It was probably only a matter of time: stock options, the commodities future market, index options — and now real estate index options.  “Place your bets” is an accurate description of what you’re doing — it’s very high-stakes gambling.  $67,000 for a single Los Angeles real estate contract?!  It’s high minimum bet, as well!

It’s touted as a hedge against falling real estate prices in a particular area, implying that homeowners in one of the areas covered by some of the contracts could buy puts to protect themselves against loss of equity.  Man, that’s risky!  And if the market doesn’t tank immediately, you have an expiring asset on your hands, meaning it loses value the closer you get to the expiration date.

I suppose that this is just another clever way to part hapless homeowners from their money.

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  1. One Response to “Real estate futures”

  2. By ML on May 13, 2006 | Reply

    The value of the future contract is inline with other commodities though, e.g. 5000 oz silver, 100 oz gold or 1000 barrel oil. The margin requirements will be similar, I expect. Of course, leveraged futures are best left to the expert or the compulsive gambler. Fully paid futures in this case can be useful in locking in profits, hedging or controlling when to take profits for tax purposes.

    It’s just a matter of time though, for a fund company to come along with a product much like DBC or PCRDX for commodities for casual speculators.

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