Instrument to hedge real estate investments

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jfaughnan

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Mar 29, 2005, 1:12:25 AM3/29/05
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It's often claimed that we've moved from a partially deflated equities
bubble to a still expanding residential real estate bubble. This is a
challenging time for anyone considering real estate purchases; one
hates to buy an asset that may depreciate by as much as 30% over the
next five years. True, the risk is low if one can hold for at least 10
years, but that's hardly a guarantee.

So I'm a bit surprised that we don't see instruments advertised for
retail investors who want to hedge on home purchases. This situation
seems tailor made for a bit of insurance. Buyers who feel that real
estate is priced irrationally ought to be able to buy an instrument to
buffer a precipitous fall in value that may occur over the next five
years.

Such instruments doubtless exist for large investors, but has any
vendor packaged them for retail investors? A real estate boom is just
the right time to deliver a 'bit of insurance'.

So if this hasn't happened yet, why not?

meta: jfaughnan, jgfaughnan, real estate, investment, derivatives,
hedging, hedge, put, option, insurance, investment, finance

ro...@telus.net

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Mar 29, 2005, 3:48:51 AM3/29/05
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On 28 Mar 2005 22:12:25 -0800, "jfaughnan" <jfau...@spamcop.net>
wrote:

>It's often claimed that we've moved from a partially deflated equities
>bubble to a still expanding residential real estate bubble. This is a
>challenging time for anyone considering real estate purchases; one
>hates to buy an asset that may depreciate by as much as 30% over the
>next five years.

In Japan, it fell 70% in three years.

>True, the risk is low if one can hold for at least 10
>years, but that's hardly a guarantee.

In Japan, it is still down by more than half from the peak, after 12
years.

-- Roy L

sinister

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Mar 29, 2005, 5:24:20 AM3/29/05
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"jfaughnan" <jfau...@spamcop.net> wrote in message
news:1112076745....@g14g2000cwa.googlegroups.com...

> It's often claimed that we've moved from a partially deflated equities
> bubble to a still expanding residential real estate bubble. This is a
> challenging time for anyone considering real estate purchases; one
> hates to buy an asset that may depreciate by as much as 30% over the
> next five years. True, the risk is low if one can hold for at least 10
> years, but that's hardly a guarantee.
>
> So I'm a bit surprised that we don't see instruments advertised for
> retail investors who want to hedge on home purchases. This situation
> seems tailor made for a bit of insurance. Buyers who feel that real
> estate is priced irrationally ought to be able to buy an instrument to
> buffer a precipitous fall in value that may occur over the next five
> years.
>
> Such instruments doubtless exist for large investors, but has any
> vendor packaged them for retail investors? A real estate boom is just
> the right time to deliver a 'bit of insurance'.
>
> So if this hasn't happened yet, why not?

I think Yale's Shiller has gotten some finance house(s) to start offering RE
hedges.

One "sort of a" hedge would be one against increases in interest rates, I
would guess.

anon

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Mar 29, 2005, 7:02:31 PM3/29/05
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<ro...@telus.net> wrote in message news:42491772...@news.telus.net...

japan with its declining population and savings culture, is prone to
deflation. it is unlikely USA will, or can, have japan-like deflation at
zero interest rates. not with 4 million new immigrants lining up to buy a
piece of the rock, and an almost 0% savings rate.

more likely in the USA is a hyperinflation, which of course ends with a
nasty deflation.


imout...@mac.com

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Mar 29, 2005, 10:31:02 PM3/29/05
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>In Japan, it is still down by more than half from the peak, after 12
years.

"But when we sat at the table in the kitchen upstairs and got into the
details with the owner, it transpired that this was something of a
'distress sale'. He had to sell, and he had to sell right now, actually
within the next couple of weeks. He named his price - 18,000,000 yen
[~$180,000], just under half of what he had paid for the place when it
was built in 1995"

http://www.asahi-net.or.jp/~xs3d-bull/hyaku-nin-issho/2000/winter/42.html#anchor_move

'course, I was paying Y110,000/mo for an apartment during that period,
so eating Y18,000,000 over 6 years isn't that different from having to
rent a house in Japan.

Les Cargill

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Mar 29, 2005, 10:50:29 PM3/29/05
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jfaughnan wrote:


Cash? Fungible tchotckies? Power tools? Rehabbing repos can be fun
and (reaonably) profitable...

--
Les Cargill

jfaughnan

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Mar 31, 2005, 3:15:23 AM3/31/05
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sinister wrote:

> I think Yale's Shiller has gotten some finance house(s) to start
offering RE
> hedges.

Brad DeLong made the same suggestion. I did email Prof Shiller but have
not heard back -- he's probably a bit busy for that sort of thing :-).
I'll try to track down the companies.

sinister

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Apr 1, 2005, 5:49:14 PM4/1/05
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"jfaughnan" <jfau...@spamcop.net> wrote in message
news:1112256923.2...@z14g2000cwz.googlegroups.com...

>
> sinister wrote:
>
>> I think Yale's Shiller has gotten some finance house(s) to start
> offering RE
>> hedges.
>
> Brad DeLong made the same suggestion. I did email Prof Shiller but have
> not heard back -- he's probably a bit busy for that sort of thing :-).
> I'll try to track down the companies.

Did you try google?

Here's one page I found:
http://www.therealdeal.net/issues/January_2005/1105453639.php

More generally:

http://www.google.com/search?hl=en&q=shiller+%22real+estate%22+hedge

RonnieH

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Apr 3, 2005, 8:38:43 AM4/3/05
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