Photo (cc) by woodleywonderworks
Housing Futures allow you to trade the real estate market as if it were stock. Think prices will go down in one area? Short some housing futures. Think they’ll go up? Buy some futures. So, the concept should be familiar, but with the housing market in the tank, the potential payoffs may not be… especially if you’re thinking of buying a home in the near future.
Suppose that, two years ago, you bet $10,000 in the housing futures market that the value of Miami real estate would decline. Today, you’d have made about $145,000. But, if you add one more variable into the mix, you’ll see where housing futures really begin to pay off…
If, two years ago, you bought a home in Miami and essentially bet that the value of your home would decline by shorting housing futures in the same market, as the value of that home declined (as it would’ve), the value of those shorted housing futures would rise. End result: you’d lose money on your home, just like everyone else in real estate, but you’d make it back by hedging your investment with futures pointed in the opposite direction. In short, housing futures can act like insurance on the value of your home, and with a dropping real estate market, they might just be worth a second (or first) look.
But be careful. Housing futures aren’t for everyone, so if you’re thinking of investing, do your homework first.