Tuesday, May 09, 2006
Suppose you're finally ready to buy that home, but you can no longer count on its value appreciating each year as it has in the past decade.
If you have a big mortgage and little equity, you might be feeling a little squeamish about all this talk of soft markets. In this week's New Yorker, James Surowiecki describes some new ways you might be able to protect yourself:
There is one much feared cataclysm, though, against which everyone has so far been defenseless—a housing-price slump. Seemingly every magazine and newspaper in America has now prophesied the imminent bursting of the housing bubble. But even though many Americans have invested all, or almost all, their net worth in their homes, they’ve had no way of insuring themselves against that asset’s value taking a severe tumble.
That’s all changing. 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
As you might do with hog futures, 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 this area 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. Thanks to www.truegotham.com.