Shorting housing prices

We were talking about this at dinner last night, so I just went online to do 5 minutes of research.  My position was confirmed: for the typical non-finance person (like an ordinary university professor), there is no low-information cost product to simply spend $250 a year, without big transactions costs or risk, to insure against significant downside housing price risk.

This story (from December 2009… the problem may have been that prices only went in one direction for the duration of the product?) is about a paired financial product that would have enabled investors to bet on short-term price movements in housing.  I t seems there are reasons also for why these are not good long-term strategies, but I am unsure exactly why.

The death of an ETF is generally viewed as a failure or as an ill omen for other related ETF’s. Today that is not the case despite the death of two exchange traded products. Today was supposed to be the final trading day of the MacroShares Major Metro Housing Up Trust NYSE: UMM and MacroShares Major Metro Housing Down Trust NYSE: DMM. These are, ergo were, the two ETF products geared toward tracking home prices in the United States.

Most will agree that these ETF products were not at all useful and not at all successful. The “Housing UP” or UMM ETF traded very low volume and even managed to go three consecutive days this month with no shares traded at all. There were only three days in the last 90 days where this traded over 10,000 shares in one day and the initial momentum of the ETF launch in late June was never sustained. The “Housing Down” of the “DMM” also only had three days in the last 90 with volume over 10,000 shares in a day. This volume here also never really took off or kept its early momentum.

via Case-Shiller ETFs Bite The Dust UMM, DMM.  Here is a critique of the investment products.

About mkevane

Economist at Santa Clara University and Director of Friends of African Village Libraries.
This entry was posted in Politics. Bookmark the permalink.