Futures markets are primarily to hedge against future price movements. So people can 'lock' in a price now and take uncertainty away.

Obviously with house prices, were more talking profit and loss gambling, but if you are looking to sell your house in 15months time, and the futures were at a premium then you could have locked in that price, then you would have the certainty of knowing that, that is the price you will get, i.e. if by then house prices have fallen, you will get less from your sale but have made a profit on the futures. If house prices have risen more than the futures, then you will get more from your sale but have a loss on the futures.

So in time of uncertainty the futures markets are good for hedging risks by experienced investors.
The prices are at a premium or discount to the spot price, depending on market sentiment and trend, thus 'IF' you get the timing right, you can make a killing in a short period of time. But it IS a gamble !

Okay here are the current house prices futures for the UK (IG Index). - Selling prices.

UK National -
Sept 04 162.5
Dec 04 159.9
March 05 158.6
June 05 154.1
Sept 05 148.2
Dec 05 145.2

Basically what the figures are saying is that the futures market is pricing in a fall between Sept 04 and Dec 05 of about 11%.

Now throw in the effect of trend i.e. trends tend to over-extend which should suggest add on 5% = 16%, Through in that in a sellers market you can offer substantially less than the asking - that's another 4% - That suggests a 20% drop by next December in actual house prices !

House price futures are also available on a regional basis.

(c) MarketOracle.co.uk 2004-05

Disclaimer - All statements and expressions are the opinion of Marketoracle.co.uk and are not meant to be investment advice or solicitation or recommendation to establish market positions. Our opinions are subject to change without notice.We recommend that independent professional advice is obtained before you make any investment or trading decisions.

The Market Oracle is a FREE Financial Markets Forecasting & Analysis online publication. We aim to cut through the noise cluttering traditional sources of market analysis and get to the key points of where the markets are at and where they are expected to move to next ! http://www.marketoracle.co.uk

This article maybe reproduced if reprinted in its entirety with links to http://www.marketoracle.co.uk

Comments

House price trader
25 Jul 07, 08:37

House Price Futures

These days Cantor's Spreadfair.com offers a far more comprehensive market for the future of house prices. There are more products than IG, spreads are narrow and sizes are larger.

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.