Futures trading real estate offers more options
March 2006
It will soon be possible to trade real estate futures and options on the CME . The availability of futures and options will give investors and traders a fast way of playing the real estate market or hedging their existing exposure. They also enable institutions and individuals to benefit from home price movements without having to physically buy and sell property. The CME believes these instruments may be of particular interest to builders and mortgage portfolio holders.
The S&P CME CSI® Housing Futures and Options will initially allow investors to take a position ob the direction of home price movements either Nationally or in ten major cities including Chicago, New York and Los Angeles. The derivatives, based on the Case-Shiller Home Price Indexes, are published by Fiserv CSW Inc. It is claimed that "CSIs are more representative than the NAR or the OFHEO indexes". Tradition Financial Services will begin trading the derivatives in April
The CME also proposes that it is "perhaps even likely that the availability of real estate futures may facilitate the introduction of a variety of risk management products that may be made available to individuals". They also believe that a substantial risk management industry will develop who will be intensive users of real estate futures. A recent article suggested that these instruments could be useful as housing bubble insurance.
Introduction to CME CSI® Housing Futures and Options White Paper (PDF file)
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