Yep. If you’re worried about having all of your life savings in your home and having the value crash through the floor due to the “housing bubble”, why not put more money at risk, by investing in a hedge fund?
At least that’s what some people think you should do.
Here’s my suggestion. If you’re worried about things so much, simply take out a fixed-rate mortgage loan, thereby guaranteeing your monthly payments, for the next thirty years.
By James R. Hagerty, The Wall Street Journal Online
Once, a home was a castle. Now it is looking more like Fort Knox — a pile of money in need of protection.
Amid warnings from economists that real-estate values in some parts of the country may drop eventually, there is a nascent movement to offer new investment products designed partly to hedge against falling property prices. The goal: Offer limited protection against the risk of riding real-estate prices back down again after the record run-up in recent years.
In recent months, Merrill Lynch & Co. and other investment banks have started offering investment products that will rise in value if a basket of housing-related stocks declines. Already, nearly $400 million of these investments have been sold, according to Daniel Carrigan, vice president for new-product development at the Philadelphia Stock Exchange.
The Chicago Mercantile Exchange also is preparing to announce plans to introduce in the second quarter of next year futures contracts based on home prices in each of 10 cities. It will also offer a composite contract covering all 10 cities. That plan follows the introduction last May by HedgeStreet Inc., based in San Mateo, Calif., of financial contracts called Hedgelets that let investors bet on a rise or a fall in home prices in six individual cities.
Strategies like these are far from foolproof, however. Derivative products like these can be complicated and risky, and none of them offers a perfect hedge against the risk that the value of any individual home will fall. But they do provide a new strategy for people worried about an eventual slump in housing.
Fun fact: According to the article, one of the companies involved in the housing bubble futures contracts is run by Macro Securities Research LLC, Morristown, N.J. The owners of Macro include Yale economics professor, Robert J. Shiller, who is known for his gloomy views on the housing market.
Um, wait, doesn’t that mean that he has a vested interest in housing prices falling? Wait, doesn’t that mean he has a conflict of interest in being quoted as an “expert economist” on housing prices?
Complete article: New Tools Available To Hedge Your Home
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