One of the more innovative derivative instruments to be brought to market is the Housing Future . Trading began in May , with futures contracts targeted to housing-price indexes in 10 major metropolitan areas . The contracts are the brainchild of economists Robert Shiller of Yale and Karl Case of Wellesley ( S&P/Case-Shiller Home Price Indices ) and trade on the Chicago Mercantile Exchange .
The proposition is straight forward : if you spend $1 Million on a Manhattan apartment , and want to hedge against the risk that it might be worth $750 Thousand two years from now, you can sell contracts that will reap you a profit if local prices fall . Conversely , if you think housing will continue to boom you can place a bet that will pay off if prices keep rising .
The contracts may be better suited to large Home Builders or Institutional Investors and may not be easily collateralized , but Investors have a new tool to speculate and hedge with . If enough traders participate in the market, it could become a valuable predictor of housing prices in different cities .
With housing prices declining some and inventories building , the Housing Boom seems to have halted and/or " popped " . The futures markets are presently indicating expectations of price declines for contracts going out as far as August of 2007
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