Housing-price futures contracts expiring in August 2008 this week began trading on the Chicago Mercantile Exchange and investors appear to have taken all the recent bad real estate news to heart. Investors are expecting deep declines in many formerly hot markets with Miami expected to fall 9.4 percent, Las Vegas 9.2 percent and Los Angeles 8.4 percent by the end of the second quarter of 2008. Markets expected to fall the least are Chicago at 5.3 percent, Denver 6.6 percent and San Francisco 6.8 percent. For the overall 10-city composite index, prices are expected to fall 6.4 percent. Investor expectations are reflected in housing-price futures and options traded on the Chicago Mercantile Exchange, which are based on a subset of the S&P/Case-Shiller U.S. National Home Price Indices. These property derivatives are traded on indices for a 10-market index and the component markets of that composite. Expectations of future price changes are implied by the percentage difference in the i...
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