Real Estate Derivatives

[Snowalker]

As if real estate property loses weren't enough to further widen the gap between rich and poor, we now have a new futures market to quicken the pace. This article in today's Boston Globe -

http://www.boston.com/business/globe/articles/2006/04/27/hedge_your_real_estate_bets/

is yet another method to manipulate the market.

Does anyone know who these guys are and where they are getting their marching orders? This seems way more orchestrated than the article indicates.

 

[Mr. Premise]

Thanks for pointing this out, Snowalker. I don't know what to make of it but it can't be good!

Anyone else want to chime in on what this could mean for the real estate market?

At a simple, linear level, the hedging of derivatives would just follow real estate prices and not feedback into them, but of course derivatives are anything but linear devices. Just speculating but it seems in general that derivatives and hedge funds, by reducing risk, would tend to prop prices up until the non-linear point where they can't be sustained anymore, then the crash comes later and becomes much worse than it would be without derivatives.

John Chang, I'd be interested in what you think with your math and market knowledge.