Those interested in seeing how other property market derivatives have evolved might it interesting to review the Eurex Property Derivatives Market. See link. These contracts are based on the total returns of MSCI-IPD UK Quarterly Indices for individual calendar years. The contract terms are outlined here. I’m told that the contracts are CFTC approved and may be traded by US counterparties.
While the contracts are on commercial real estate indices, and the indices reference properties outside the US, the contract terms might be useful in prompting discussion of how OTC contracts in the US might evolve (whether residential or commercial). For example, given recent inquires, I can see how there might be demand for a one-year forward hedge on selected areas not covered by the CME (e.g. Seattle, Austin, Houston, Phoenix), or on US commercial real estate derivatives.
While there have been only a handful of trades this year (see link for trade data, open interest) the size of trades has been much more suitable for institutional investors. For example, open interest at September month-end was 1,266 contracts. As each contract has notional value of £ 50,000, the total open interest tallies >£ 63mm.
If interested, best to contact Charles Ostroumoff at Arca Propety Management. Arca is a niche brokerage specializing in matching MSCI-IPD property futures contracts for its institutional clients, and my understanding is that they have brought the two sides together on most of these Eurex contracts.
If anyone has any questions on these Eurex futures contracts, or any question related to hedging home prices (or given this blog, commercial real estate indices), feel free to contact me (email@example.com).