Can You Hedge The Value of Your House?

Thu, 02 Jul 2009 13:45:20 +0000

The Case-Shiller index values for April was released 30th June 2009. It showed a slowing of the decline is real estate values. Still dropping, but at a slower pace. Spring is prime home buying time, so the slowing decline might reflect that seasonal effect.

Case-Shiller Housing Index Through April 2009

There is great variability between the cities. Here are the results for each city in the index:

City	Index (April)	1 Mo Change (%)	Previous Month Change (%)	One Year Change (%)
Atlanta	105.36	+0.3%	-1.5%	-14.8%
Boston	146.45	+0.4%	-2.0%	-7.7%
Charlotte	118.69	-0.5%	+0.3%	-10.0%
Chicago	122.3	0.0%	-3.1%	-18.7%
Cleveland	98.07	1.2%	-0.9%	-10.5%
Dallas	114.39	+1.7%	+0.1%	-5.0%
Denver	122.17	+1.5%	+0.1%	-4.9%
Detroit	69.92	-1.5%	-4.9%	-25.4%
Las Vegas	112.39	-3.5%	-3.8%	-32.2%
Los Angeles	159.37	-0.9%	-1.4%	-21.3%
Miami	145.77	-2.0%	-3.6%	-27.3%
Minneapolis	108.63	-0.7%	-5.9%	-22.1%
New York	170.33	-1.7%	-2.6%	-12.5%
Phoenix	104.45	-2.2%	-4.5%	-35.3%
Portland	146.85	-0.6%	-2.1%	-16.0%
San Diego	144.43	-0.1%	-1.5%	-20.0%
San Francisco	118.46	+0.6%	-2.2%	-28.0%
Seattle	149.38	+0.2%	-2.0%	-16.8%
Tampa	140.41	-0.7%	-2.7%	-21.3%
Washington	167.38	+0.8%	-1.3%	-16.9%
10 City Composite	150.34	-0.7%	-2.1%	-18.0%
20 City Composite	139.18	-0.6%	-2.2%	-18.1%

It would be great to hedge the value of your house so that further declines would be made up by an increase in a security. Well, MacroShares launched two Exchange Traded Trusts on 30th of June that track the ten city composite.

Or do they?

MacroShares Major Metro Housing Up (UMM) and Major Metro Housing Down (DMM) return three times the index and minus three times the index. But not month to month. They are designed to return the given multiple of the index in November 2014. Until then, they will fluctuate depending on investor sentiment.

Another interesting feature is that they transfer money between themselves based on the relative price. As more money comes into the funds, they buy Treasuries that they transfer depending which Trust is higher.

If they had launched in 2006, DMM would already be shut down, because the 10 city composite peaked at 225 and now it is at 150. A 1/3 drop wipes out the Trust.

Because the trusts move to plus and minus three times the Case-Shiller index in five years, they can be used as a five year hedge for your house value. If you sell your house before then, there is no guarnatee that the Trusts will reflect the change in housing prices. They act like a warrant, trading on what investors expect housing prices to be on 31st August 2014, payable in November 2014.

Trade Naked » Minneapolis

Can You Hedge The Value of Your House?