I continue to believe that there's a role for home price index hedging. While co-investment firms can help when people need money, and/or are concerned about basis risk between the price moves of one home and an index (more on that in a future blog), there are many investors, builders, future buyers, those looking to relocate, those with bullish expectations, or shorter-term forecasts (all where a longer-term co-investment program may not be optimal) that may prefer just to hedge.
As I've written before, there might be many reasons for an individual to buy/sell an exposure to an index in "bite-sized" pieces. (See May 17th blog as to how to reduce the stress of 100% Rent v 100% Buy v 100% Sale decisions). The CME Case Shiller contracts cover ten very large, broad geographic regions, but there are people in >300 cities (i.e. those referenced by Freddie Mac NSA indices) that may want a more geographically targeted hedge.
As such, I've been touting my Home Price Hedging Fund (#HPHF) to facilitate home price index agreements. See https://www.homepricefutures.com/hphf for a description of terms.
An example of how a single market is yesterday's tweet on Houston. (https://twitter.com/HomePriceFuture/status/1187385455903432705 ) Note that I'm proposing quotes for year-end index values generated by assumptions of HPA for 2019 and 2020. (At a minimum such quotes should prompt debate over regional forecasts!)
While my goal is to create a platform where users can meet to exchange risk, I realize that I may (at this early date) have to take one side of trades to jump-start the program. As such, I'm continuing to post quotes on many cities to see where there might be interest in either side of an agreement. I'd be happy to take exposure to a number of small trades.
Here, as an example, are recent proposed quotes on ten cities (selected as the "Top Ten Markets for Flipping" by NAR (@nardotrealtor ). Note the range of implied HPA across regions from the very bullish Tampa, to the slow-growing Las Vegas market. (Note Miami, Las Vegas are highlighted as CME Case Shiller contracts already exist for those regions. For a variety of reasons, I'd prefer to take exposure to those regions at the CME. Prices are shown here for illustration and to fill out the "Top Ten Markets" list.
Please contact me if you have an area on which you'd like to see a hedge proposal, and/or to contact me if you have any questions on this blog, or any aspect of hedging home price indices.
Thanks, John