Think the Market's Gonna Drop? Now You Can Bet On it
Beginning on May 22nd, you home gamers can actually bet on the direction of the real estate market. Let us explain... the Chicago Mercantile Exchange will begin trading futures and options c
ontracts in each of 10 major metropolitan areas (none of which are in the Northwest) along with one composite index. The cities covered will be: Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco and Washington, D.C. Prices will be based on the National Association of Realtors' median price for existing home sales in a particular area. Although many of you will come to think of these as hedges against a drop in your own properties or investments, understand that these types of contracts are highly leveraged instruments. Chicago Board contracts trade on margin, or 10 percent to 15 percent of the contract’s full price. Investors will be liable for the full amount in the event of margin calls or if they bet on the wrong price directions. Given the high cost of these contracts, their initial audience will most likely be institutional investors, aka "smart money." Large institutions have made enormous bets on real estate over the last five years. Could this be a way to help ensure a soft landing for many of them?
