Derivatives Markets for Home Prices
The establishment recently of risk management vehicles for home prices is described. The potential value of such vehicles, once they become established, is seen in consideration of the inefficiency of the market for single family homes. Institutional changes that might derive from the establishment of these new markets are described. An important reason for these beginnings of real estate derivative markets is the advance in home price index construction methods, notably the repeat sales method, that have appeared over the last twenty years. Psychological barriers to the full success of such markets are discussed.
An earlier version of this paper was presented at the Lincoln Institute of Land Policy conference "Housing and the Built Environment: Access, Finance, Policy," Cambridge MA, December 7 and 8, 2007. This paper will appear in a Lincoln Institute volume edited by Edward Glaeser and Jonathan Quigley. The author thanks David Blitzer, John Hartigan, Terry Loebs, Jonathan Reiss, Steve Rive, Aniket Ullal and Ronit Walny for helpful comments. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
- The principal problem [with] the market for real estate derivatives, [is] liquidity, institutional investors, observed...