Wednesday, March 22, 2006

You Don't Have To Buy A House To Lose Money

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Now you can lose money on L.A. real estate without buying any.

Here's an excerpt from a story on detailing new derivatives that gamble on housing values in Los Angeles and other cities:
There's finally going to be a viable way to cash in on the housing price boom -- or to guard against its decline -- without going through the messy business of actually buying and selling properties.

On Tuesday, the Chicago Mercantile Exchange and Tradition Financial Services, together with Fiserv Case Shiller Weiss and Standard & Poor's, announced the launch of S&P CME Housing Futures and Options.

These derivatives will enable investors to take a position on the direction of home prices either for the nation as a whole or for 10 major cities to start, including New York, Los Angeles and Chicago.

Of the three major asset classes, the bond, the stock and the housing markets, only the housing market, which represents some $20 trillion in assets, cannot be speculated on easily, said Robert Shiller, the Yale economist and author of "Irrational Exuberance," the 2000 book that foresaw the bursting of the tech-stock bubble.

"How can it be that we have no way of trading it?" said Shiller.

With his partner, Karl Case, Shiller started developing the Case Shiller Home Price Indexes about 20 years ago. The pair claim it is now considered the most accurate measure of the residential real estate markets. The S&P CME Housing Futures and Options will be based on the data accumulated in these indexes, so accuracy is crucial for building trust among potential investors.

— The Boy in the Big Housing Bubble