Housing futures

At a new online site called HedgeStreet, investors can bet on changes in home prices in certain cities. And later this month the Chicago Mercantile Exchange is going to start trading futures contracts pegged to housing-price indexes in ten major metropolitan areas. The Chicago plan, which is the brainchild of two economists, Karl Case, of Wellesley, and Robert Shiller, of Yale, is straightforward: if you just spent, say, $1.5 million on a two-bedroom apartment in Manhattan, and you want to hedge against the risk that it might be worth $1.2 million three years from now, you can sell contracts that will reap you a profit if local prices fall, allowing you to lock in the current value of your home. Alternatively, if you think the housing boom in Los Angeles still has a ways to run—or if you’re interested in buying a year from now but are afraid that you’ll be priced out of the market—you can place a bet that will pay off if prices keep going up.

Through the Roof,” by James Surowiecki, The New Yorker, May 1, 2006

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