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XYZoo@webtv.net (X Y) wrote in news:22007-44C662EA-761@storefull-
3315.bay.webtv.net:
> Please explain how short selling would work in the real estate arena.
Well, I am sure others here can answer much more clearly than I, because
I am just learning, myself.
But what I have read, based on the suggestion from "speednxs," you can
trade real estate futures. It works roughly like this:
There's an index that tracks home prices in each of ten major cities
(NYC, LA, SF, Chicago, San Deigo, etc...), called the Case-Shiller index.
The value of that index can be speculated upon, just like an actual
physical commodity, like coffee beans, or gold, or gasoline.
The Chicago Merc Exchange (CME) offers a futures market based on those
indices. So, say I've $5K to invest. I can either take a long
position or a short position on those futures. If I believe the price
will go up in three months, six months, or whatever, then I'd just
buy futures at the current price, then sell them later at the higher
price to turn a profit.
However, if I believe that the price is going down, then I can sell
short, instead. But the tricky part is that futures are extremely
"leveraged" positions. Meaning, if you invest $5K, you're actually
trading on some much larger amount of whatever it is you're talking about
(real estate, in this case). So if the real estate market dips 10%, you
might stand to gain (or lose) something much larger, like 50% or even
100% of that $5K.
There's a really thorough explanation of it here:
http://www.investopedia.com/university/futures
Ok, here's a little more info. I just talked to a futures broker at e-
trade, and they don't trade housing futures right now. But he said that
they would be adding them as of August 31st. Apparently the whole
housing futures market is brand spanking new... The CME only added them
about two months ago. Really interesting stuff. So is it coincidence
that this new real estate futures market sprang into existence just when
we seem to be poised for the bottom to fall out? Hmm...
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Re: "Shorting" the real estate market? Explain!
