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How to short Boston?

 
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admin
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Location: Greater Boston

PostPosted: Mon Jul 18, 2005 5:47 pm GMT    Post subject: How to short Boston? Reply with quote

Does anybody have recommendations for how to short the Boston housing market (apart from renting)? Hedge Street lets you hedge in real estate for various areas, but not Boston yet. It sounds like Robert Shiller's company MACRO Securities Research will also provide a mechanism for real estate hedging at some point, though not yet. Are there any insurance companies which insure against real estate market declines in the Boston area? Does anybody feel like starting a campaign to get Boston added to Hedge Street or even to TradeSports?

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unreal esate
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PostPosted: Fri Aug 05, 2005 2:15 am GMT    Post subject: Reply with quote

please keep us posted on this. i found hedgestreet a very interesting site and was surprised to see nothing on greater boston.
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PostPosted: Fri Aug 05, 2005 3:16 am GMT    Post subject: Write to Hedge Street Reply with quote

If you haven't done so already, please write to Hedge Street and request that they add Boston to their list of areas for real estate "hedgelets". I wrote them and they replied rather quickly. Their email contained one of those boilerplate disclaimers stating that it was confidential at the bottom, so I can't tell you exactly what they said (actually, maybe I could - I've always wondered how legally binding those things are since I never agreed to it, but legalities aside, I want to respect their wishes). However, I will say that if more people write them, it may help. Their email address for new hedgelet suggestions is instruments@hedgestreet.com and their contact page can be found at http://www.hedgestreet.com/howitworks/index.html?page=contact.html

It's good to hear that somebody else is interested in this thread. I'll certainly keep you posted if I find anything new.

It did occur to me that the Kiplinger's article from a few weeks ago which ranked Boston the #1 riskiest real estate market was actually conducted by The PMI Group (as in private mortgage insurance). They have many different products on their website and I haven't looked through them all yet to see if any are available to effect a short if you don't have a mortgage. It might be worth looking into, though.

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admin
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PostPosted: Thu Sep 01, 2005 5:30 pm GMT    Post subject: Boston-Cambridge-Quincy housing price futures Reply with quote

At last, an online betting site has added futures for housing prices in the Boston area:

http://www.pinnaclesports.com/

I need to read up on this site a little more to see if it makes sense for me to use as a vehicle for shorting the real estate market here, but I know others were interested in the latest developments in the available vehicle possibilities, so here you go.

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PostPosted: Wed Nov 09, 2005 9:12 pm GMT    Post subject: short the housing bubble Reply with quote

I edit a blog about the stock market. Yesterday I posted an article about how to profit from a slow down in the housing sector. I thought you might find it interesting. I hope it's OK to show the link:

http://protectedstocks.blogs.com/main/hpb/index.html

I'm not selling anything. I promise or you may spam me to death!

Sincerely,

Jay Buster
Protected Stocks
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draculess
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PostPosted: Fri Nov 11, 2005 1:43 am GMT    Post subject: the numbers don't add up Reply with quote

Housing forecast: downturn until '07 link posted in Nov 10th 2005 does not make any sense- if the majority of people are not seeing payrises in their salary what makes the analysts think we can afford a house in 2007. especially when the cost of the same house is also under a higher mortgage rate too
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PostPosted: Fri Nov 11, 2005 4:30 am GMT    Post subject: Another new hedging option coming up, and also thanks Jay Reply with quote

The Chicago Mercantile Exchange is slated to offer futures on Boston housing prices beginning in April 2006. Futures will also be offered for nine other cities: Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, and Washington D.C. as well as a composite of all ten cities. It looks like there is some collaboration with Robert Shiller's firm, so this may or may not be the product that I previously mentioned as the upcoming offering from MACRO Securities Research - I'm not sure whether this is the firm referenced in the article (maybe Shiller has multiple firms). It could even be the same firm but a different product.

Jay, thanks for the link and the information on the protected stock that tracks the housing sector in general. Helpful links like that are definitely welcome, although I think readers may be most interested in the following link since it is a "permalink" for the article you were referring to (the link you gave appears to show the most recent blog entry, so the article you referred to is fading away from what visitors see when they enter your site):

http://protectedstocks.blogs.com/main/2005/11/hpb.html

As for using your approach to short the Boston market, it seems like it is a bit removed in a few ways. First of all, the index tracks companies that are largely dependent upon the housing market for their revenue, and so there is a level of separation between actual housing prices and the price of the index. Granted, I would certainly expect a correlation, though I also wouldn't be surprised if there is a significant deviation between the two. Secondly, the index appears to track things on a national level (maybe even international) instead of just Boston. Again, there is certainly some correlation, but it wouldn't be as precise as something like the Case Shiller Weiss index for Boston if you want to offset the risk of your home's value falling. Still, it's good to know that tool is there - thanks.

Draculess, I agree with you that the article I posted today is overly optimistic. I posted it because it was only a few months ago when the typical prediction was for continued appreciation and I think that this article marks a turning point and predictions will become gradually more pessimistic from here. If you would like to discuss this in detail, I recommend that you create a new topic in the "Economics" forum.

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PostPosted: Fri May 19, 2006 8:03 pm GMT    Post subject: HedgeStreet to begin Boston coverage Reply with quote

MarketWatch is announcing that HedgeStreet will add contracts based on the Boston housing market. Their headline makes it sound almost as if the contracts are already available, but the contracts aren't in their list of markets yet. Still, it's good to hear that we will soon have yet another option available as I believe that The Chicago Mercantile Exchange hasn't actually launched their futures market for Boston yet.

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PostPosted: Fri May 19, 2006 9:08 pm GMT    Post subject: Reply with quote

I am very excited about this development and not because I might be able to hedge the market.

Having a futures contract is going to mean there is a "market estimate" of future prices. This will be useful, for example, if as a buyer, I want to convince someone to take my offer which is 2% below market, and I can show them that the futures contract for next month shows a 2% decline, the futures contract will make the 2% decline objective instead of just my opinion. Also, instead of having to read just the retrospective data from MAR, there will be an objective estimate of future prices in Boston. MAR data doesn't come out until 3/4 through the next month and it reflects prices from deals that went under agreement 1-2 months ago. In a rapidly changing market, this is very stale data.

In this way, a 2% drop in the futures price would have a self-fullfilling aspect and might tend to make the real market more volatile.

A market estimate of the Boston price will also be a great contrast to MAR rosy forecasts, as a recent article on this Blog summarized. (BTW awesome collection of quotes, I loved it!). I bet MAR is very unhappy about the Boston real estate derivative, unless they figure it won't succeed.

I think this is huge and could play an important role in the Boston real estate market.
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PostPosted: Tue May 23, 2006 2:14 pm GMT    Post subject: CME begins trading Boston futures after delays Reply with quote

As reported here in November, The Chicago Mercantile Exchange has finally started trading the long awaited futures for several housing markets, including Boston. More information is available from the Chicago Mercantile Exchange website at http://www.cme.com/trading/prd/env/housingover16250.html

Rush, I agree with your post that these hedging vehicles will also make great predictive tools. There was an interesting article at Reuters that touched on this last week.

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PostPosted: Tue May 23, 2006 8:35 pm GMT    Post subject: Reply with quote

Thanks for posting information about the house index.

The Boston index can be found at: http://www2.standardandpoors.com/spf/xls/index/MetroArea_PriceHistory.xls and futures at: http://housingrdc.cme.com/ and background at: http://www.cme.com/files/TradableCSI_Primer_Brochure.pdf

A few data points are interesting:

Market peak: 182.45 (Sept 05)
Current market: 176.28 (Feb 06)

It will be interesting to see how these change. Unfortunately, there doesn't seem to be any trading of the futures contracts, so they are not informative. Since February is the most recent month, the data is even staler than the MAR MSP. However, it is nice the CSI index is a repeat sale index which is much more meaningful than a median selling price index.

On an inflation adjusted basis, the drop from Sept 05 to Feb 06 is more than the nominal 3.4% decline.
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PostPosted: Wed May 24, 2006 3:26 pm GMT    Post subject: CME Housing Futures launched Reply with quote

You can trade on Boston now using CME housing futures. The information below is taken from their brochure:

CME Housing Futures and Options 3
The First Tools for Managing Housing Risk
While other industries, such as agriculture and the financial
markets, have access to a wide range of financial risk
management tools, such tools have not been available to
the housing industry – until now. CME is continuing its
tradition of innovation with the creation of the first comprehensive
products to hedge risk in real estate – CME
Housing futures and options.
These products provide opportunities for protection in
down markets, and extend to the housing industry the
same financial tools that previous CME innovations have
brought to agriculture and finance. By providing a means
of hedging exposure to home prices, they can diffuse the
potential impact of sustained declines in housing prices.
In addition, they:
» Create a new means of risk transfer to a broad range
of investors
» Have the potential for fostering stability in the housing
industry
» Provide an innovative way to participate in the real
estate market without having to buy and sell properties
Based on the S&P/Case-Shiller (CS) Home Price
Indices , CME Housing futures and options are cashsettled
to a weighted composite index of U.S. real
estate prices, as well as to specific markets in
10 major U.S. cities*:
What Are Futures and Options?
Futures contracts are standardized, legally binding agreements
to buy or sell a specific product in the future. The
buyer and seller of a futures contract agree on price today
for a product to be delivered or settled in cash at some
date in the future. Each contract specifies the quality,
quantity, and the time of delivery or payment and location.
The value of a futures contract is derived from an underlying
financial measure or market, such as equity index levels,
currency exchange rates, interest rates or commodity
prices – hence the term derivatives. As the value of the
underlying measure or market changes, the value of the
futures contract based on that market also changes.
Institutions and individuals that face financial risk based
on the movement of the underlying measure or market
can buy or sell futures that will change in value to offset
that financial risk. Such transactions are known as hedging.
Institutions and individuals also buy and sell futures
hoping to profit from price changes. These transactions
are considered speculation.
CME also offers investors options on futures. Options
can be thought of as insurance policies. The option buyer
pays a price for the right – but not the obligation – to
buy or sell a futures contract within a stated period of
time at a predetermined price. The combination of
options and futures, both risk-managing tools, can give
market participants the leverage of futures and the more
limited risk of options. Options provide the opportunity to
limit losses while maintaining the possibility of profiting
from favorable changes in the futures price.
CME Housing Futures and Options
» Boston
» Chicago
» Denver
» Las Vegas
» Los Angeles
» Miami
» New York
» San Diego
» San Francisco
» Washington D.C.
* Specific counties available at cme.com/housing
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