Housing futures

drukes1234 · Jun 10, 2006

When does the housing futures trading start and does anyone know what the symbol will be in IB? Also, is there going to be a stock derivative of the futures like the SPY's for the S&P futures so there isn't big leverage?

Thanks

nazzdack · Jun 11, 2006

They've been trading for ~2 weeks. Volume is teeny-tiny.

Pabst · Jun 11, 2006

As predicted by Pabst last October.

Quote from Pabst:

10-03-05 01:16 PM

Because of the housing markets sheer size it makes a compelling asset class for risk transference vis a vis futures. However these contracts will attract zero institutional participation and alas die a quick death.

There's NEVER been a successful futures contract without commercial participation. Stock index futures may appear to be a bucket shop casino product but their cog has always been mutual fund hedging, program trading and portfolio insurance. A bunch of hedge funds or IB retail daytraders exchanging opinions does not a great contract make.

The biggest problem with these contracts will be the lack of a standardized underlying cash market. Ok, it's an index. An index of what? Commercials want exact contract specifications. They don't hedge oil risk. They trade Brent light sweet crude. Or not just wheat but hard, red winter wheat. No one wants to merely exchange price risk for basis risk.

Thus a cash settled housing index, albeit regional, tells a hedger little about what his specific correlation to the index may or may not be. An example. After 9/11 condominium prices in Manhattan fell sharply for several months, yet single family home prices in NJ, LI, CN, and Westchester rose. What good would a hedge in the NY housing future do a commercial in that scenario. Or what if because of high energy prices, smaller more fuel efficient city homes with closer commuting distances out-perform large homes on the fringes of metropolitan areas. The hedging needs of a suburban lender/builder/buyer are diametrically opposed to his inner city counterpart.

Back in the early 1990's the CBOT spent millions developing futures for the re-insurance market. Like housing, insurance is a humongous cash market with no central price discovery allowing commercials to transfer risk to speculators. These contracts also failed for much the same reason.
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nazzdack · Jun 11, 2006

Pabst-------You're "The Man". I only forecasted what you did on 2-6-06. I don't know how to copy old threads onto a new thread.

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Housing futures

drukes1234

nazzdack

Pabst

nazzdack