Industry News

Protection from home price declines

Chicago exchange studies futures market for real estate price swings

Homeowners could someday have a financial tool to defend against a rapid drop in home prices. Much like derivatives markets can buffer companies from the effects of severe weather swings, similar products could be developed to help home builders, insurance companies and homeowners weather a deep depreciation in home prices. The Chicago Mercantile Exchange, the nation's largest futures exchange that offers products relating to interest rates, stock indexes, foreign exchange and commodities, has begun to explore the concept of creating a house-price derivatives market. This month, the exchange announced that it has completed a letter of intent with MACRO Securities Research LLC to explore the development of derivatives based on CSW housing price indexes, which are used by mortgage lenders for loan originations and mortgage analysis. David Lereah, chief economist for the National Association of Realtors, said, "Hedging on home values makes sense and can be accomplished. NAR Research ...