INREEX, the International Real Estate Exchange, allows investors to buy contracts based on their expectations for real estate prices. The exchange, which is based on House Price Index data published by the Office of Federal Housing Enterprises Oversight, allows users to purchase contracts that represent the average home price in a particular state or the country as a whole. Contracts are traded at 100th the price of the index, so that a median home price of $300,000 would be trading at $3 per contract, for example.
HPI data is released every three months, and contracts are traded freely until the day that the data is released. Users of the system would buy a contract if they expect HPI data will rise, and can sell or short a contract if they expect HPI data to fall in a given market.
There are other exchanges that allow real estate price speculation, too. The CBOE Futures Exchange, a subsidiary of the Chicago Board Options Exchange Inc., for example, this month announced plans to launch futures contracts based upon National Association of Realtors data on median existing-home prices. The futures exchange created five futures contracts designed to track the median price of existing-home sales nationally and in four distinct regions within the United States, and these new contracts are expected to launch in the second quarter of 2006, pending regulatory approval.
Another exchange, HedgeStreet.com allows visitors to speculate on real estate price appreciation.
The HPI is based on quarterly data on mortgage transactions supplied by Fannie Mae and Freddie Mac. This data is combined with data of the previous 30 years to establish price differentials on properties where more than one mortgage transaction has occurred. The data are merged, creating an updated historical database that is then used to estimate the HPI, according to INREEX.
“In the last few weeks we have seen an overwhelming increase in participation on our real estate prediction exchange. We are excited that investors are responding to our product in a favorable manner and hope to continue perfecting this new and innovative way to participate in the real estate market,” Paul Rozenberg, CEO of INREEX, said in a statement. “We feel that there has yet to be a major enhancement to the way real estate speculation is conducted and that it is time to commoditize this vast pool of equity.”
The company announced that the exchange “has the look and feel of a traditional stock exchange.” Trading is allowed 24 hours a day, seven days a week.
Online tools include real-time quotes, charts, real-time order book, time and sales, watch lists, and a proprietary real-time screening tool that allows investors to identify market trends.
“Whether a speculator wishes to bet that the price of real estate will go down or a day trader is looking to take advantage of an arbitrage opportunity, we want to facilitate that activity and become the premier destination for electronic real estate speculation,” Rozenberg stated.
In early 2005 company managers they began designing a system to facilitate peer-to-peer electronic trading in real estate. The initial step was to archive OFHEO data and build a proprietary database of charts and price history that would be a tool for investors in identifying trading opportunities, the company announced.
The system was prepared for a 2006 launch in the United Kingdom, and in March 2006 INREEX was acquired by a U.S. company and began trading on the OTC markets under the ticker symbol: IRXI.