Housing Returns to HedgeStreet
Trading of housing “binaries” returned to HedgeStreet today with three additional cities: Las Vegas, Denver and Washington, DC. That brings the total number of cities available for hedging and speculation to ten.
HedgeStreet’s website describes their hedging instruments as a way consumers can “speculate the degree to which their home will appreciate, or conversely, hedge against depreciation in the value of their home”. But I’d be willing to bet (no pun intended) they’d increase trading volume rapidly if they pitched to real estate agents as a way to hedge asking prices. For example, Joe Realtor could suggest a slightly higher asking price for a listing and place a bet against rising prices using HedgeStreet.
In any event, I think HedgeStreet is a cool idea and hope it gains more traction this year whomever the traders may be.
March 30th, 2007 at 4:56 am
Its is a cool idea, and I’m glad I’ve found your blog. The underlying index which prices the housing Hedgestreet instruments is: National Association of Realtors Median Sales Price of Existing Single Family Homes for the cities you listed. The question, to any realtors out there, is if they consider this index in any sales of home they make?
For example, the Boston Single Housing market August 13, 2007 contract has a strike price of 380,000. If the price of this index is higher than 380k on Aug. 13, buyers make $100 per contract (less the purchase cost of the contract now). If the price of this index is lower than 380k on Aug.13, sellers will earn the premium they sold the contract, (if not, they pay the buyer)
Realtors can take advantage of posting asks/sellling at higher prices on Hedgestreet in their markets. If, during the sales process, housing prices decline, the potential of their housing hedgestreet premiums will increase, and thus they are protected in down markets (protected from lower commissions - if they have room to negotiate). If housing prices increase, theoretically, their commissions will increase which will pay for the housing hedgestreet instruments they sold. In any event, Realtors can now sell their risk to protect against lower assets (their commissions?), or at least cap their risk in various ways to match how they do business.
Of course you have to be willing to write in the Boston Realtor index language in any sales contracts. Does any Realtor look to this index in their sales process? The only application hedgestreet housing contracts offer immediately are owners wanting to protect the values of their properties by also selling these instuments. Feel free to email me at binaryoptions@yahoo.com if you do, or if your looking at a particular strategy
April 2nd, 2007 at 10:13 am
This is a cool idea. More investment options means better allocation of risk, as always. People interested in trying to speculate in or hedge against appreciation/depreciation in home value might also be interested in housemath.us. This site has all kinds of information about all of the costs associated with owning and continuing to own a home.