Now you can invest in (or short) the housing market based on some new S&P indexes… Interesting stuff – especially the possibility of regional plays.
S&P Will Launch
Indexes to Track
By KAREN TALLEY
March 23, 2006; Page D2
Investors who think the housing bubble is about to burst will soon be able to bet not only on when it will happen, but where.
Standard & Poor’s, a unit of McGraw-Hill Cos., is rolling out 10 indexes that will track housing prices in various regions of the U.S., as well as a composite index. The indexes, which plan to launch in April, will serve as the basis for futures and options contracts that will trade on the Chicago Mercantile Exchange.
The contracts will allow investors to go long or short on a specific housing market – that is, bet on it rising or falling in value.
Dubbed the S&P/Case-Shiller Metro Area Home Price Indices, the 10 cities comprise Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco and Washington, D.C.
The composite index will be weighted, with New York, for instance, carrying more influence than Miami because the Big Apple has higher housing values and more homes.
“Obviously all this talk about housing bubbles is going to enhance interest in the product,” says David Blitzer, chairman of Standard & Poor’s Index Committee. But he adds the indexes are also meant to serve as a reliable source of information about what is many consumers’ most valuable asset.
The indexes will use calculation techniques developed by economics professors Karl Case and Robert Shiller, such as repeat-sales calculations and a database comprised of home sales from a variety of sources, including lenders, multiple-listing services and public records. Data will be gathered continuously, and the indexes will be updated and published monthly, Standard & Poor’s said.
Futures contracts obligate an investor to buy or sell an underlying asset on a certain expiration date at a fixed price, unless the investor makes an offsetting trade beforehand. Options grant the right, but not the obligation, to buy or sell an underlying asset at a fixed price anytime before expiration.
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