Monday, March 20, 2006

Real Estate Future Contracts

The CBOE Futures Exchange will be launching futures contracts based on NAR Data:

The CBOE Futures Exchange (CFE) announced Friday that it plans to launch futures contracts based upon median prices in the NATIONAL ASSOCIATION OF REALTORS®' existing-home sales data.

Through a licensing agreement with NAR, CFE has created five new futures contracts designed to track the median price of existing-home sales nationally and in four distinct regions within the United States. CFE plans to launch the new contracts in the second quarter of 2006, pending regulatory approval.

“With the U.S. housing market valued at nearly $20 trillion, real estate is not only the hottest topic of conversation, it is an asset class unto itself that is arguably one of the most important segments of the U.S. economy,” said CBOE Chairman and CEO William J. Brodsky. “CBOE gave careful consideration to the development of this contract to ensure that it had practical application for hedging as well as speculating, offering a chance to participate in the real estate market to a wide range of investors — whether your outlook is regional or national, bullish, or bearish.”

“The launch of the NATIONAL ASSOCIATION OF REALTORS® Existing-Home Sales Median Price futures contracts marks an important milestone in the evolution of housing as an investment. Now investors, including home owners, real estate professionals, and companies in the real estate business, have a new way to participate in the housing market. In partnership with the CBOE, NAR is proud to be playing a central role in the creation of this new marketplace,” says Thomas M. Stevens, NAR president.
Yikes! The NAR was the same people who produced the infamous Anti Bubble Reports.


  1. wow, this would be awesome. It would give a way for the market to indicate the future direction of housing prices. I hope that regional markets are used instead of a national median. This would be a great way for souring market sentiment to be measured (and it might encourage price reductions)

  2. true. but do you trust the NAR to crunch the numbers?

  3. This is a joke right? What are we buying/selling? The right to buy/sell a median home at a median price at the close of business last Friday of the month? This is insane. Do they adjust for the changing nature of the median? What if the NAR fudges on their definitions of sale or price? What about comissions? They are part of the sales price but not part of the value. The time delay alone makes this unworkable.

  4. The Chicago Mercantile Exchange is also supposed to be offering housing futures around the same time:

    This isn't the same thing, is it?

    Their data will be provided by MACRO Securities Research, LLC, which is one of Professor Shiller's firms. I don't know if their data is built upon the NAR, though.

  5. It is incredible. Futures contracts are by definition a binding agreement to buy or deliver something at a specified price on a specified date. So, notwithstanding the NAR issue, mentioned above, what the hell are they going to trade?

    This would make sense in Las Vegas, but LaSalle Street? WTF?

  6. These are cash settled. They are not backed by any real houses, just NAR data. This probably limits their usefulness, if you are trying to hedge your exposure to the bubble.

  7. This was created for the Big banks whose portfolios are stuffed full of loans on falling Real Estate.

    Chances are the money changers think they can "control" prices like it did with OIL in the 1980's.
    Huburous has no limit!

    Speculation on any & everything..Let's do futures on a coin flip!Next
    Please, then I will have seen it all!

  8. The Chicago Mercantile Exchange real estate futures sound much more intereting. The white paper here
    compares the CSI data with the NAR data and tells you why the NAR data can be misleading.

  9. will it be a futures contract or some sort of derrivative product like a SPDR?

  10. Whatsamatta? You boys think buying and selling homes is no different than daytrading, right?

    Well, there it is, this is just the thing for yous. Go squander your coins playing pick and click like yous been doin for years.

  11. If the NAR provides data that allows for these types of futures trading to take place, does that mean the NAR will need to conform to SEC rules with regards to their public announcements and rah-rah speeches?


  12. I am going to research what are the spec for the contracts, expected trade volume, interest, economic motives of the buyers and sellers etc., it will take me a few weeks: then I am going to jump in.

    I believe, and there is plenty of data to back me up; that North East and West Coast are in an unsustainable real estate market. We have read enough and seen enough bubble sites (although this is one of the best ones), now its time to put our money where our mouths are. Anyone wanna join?


  13. thanks Victor for your compliment. It would be interesting to hear some of your research findings.

  14. Real estate futures may prolong the death spiral in real estate prices. Futures and derivitaves tend to make markets less volatile. With futures, real estate prices will still come down, just not as quickly and violently as they would otherwise.

  15. in general quick drops and spikes in markets is a bad thing, the less volitile the better. Gross did a piece on this a while back, he argues the primary benefit will be the big developers who cover many regions who will hedge their regional positions, good for them but doesn't help the little guy out much at all

  16. Anonymous said...Real estate futures may prolong the death spiral in real estate prices. Futures and derivitaves tend to make markets less volatile. With futures, real estate prices will still come down, just not as quickly and violently as they would otherwise.

    First, will people please start signing in and NOT use "anonymous?" That name is taken already, so please just spend a few seconds to come up with a nice little name!

    Second, even if the volatility falls, the price can still come down very quickly. I think that having futures markets will lead the price to fall faster (because I think we are in a bubble). So if more people are reviewing the "fundamentals" and making bets that prices will fall, it will create a buzz, and more and more people will say "yes, prices ARE too high." This will lead to a drop in demand and the bubble will pop! (at least that's how I see it)