Make (or Lose) Money from Other People's Homes
Dec 29, 2011 |
If there is a way to make money, someone will think of it. Radar Logic, capitalizing on the volatility of housing, is doing just that. It is launching housing futures in conjunction with CBOE Futures Exchange.
Since residential real estate is the world’s largest asset class, it should be a part of everyone’s portfolio. And, in fact, it is for homeowners. But for those that chose to rent instead of buy, this offering could be beneficial for diversification.
Also, the ability to trade residential housing is potentially helpful to traders, because residential home prices fluctuate long term as well as seasonally. Roughly, the former is every 18 years. The seasonal rotation is such that monthly sales are highest between May and November and lowest December to April.
The foundation of the contracts will initially be Radar Logic 28-Day Real Estate Indexes composed of 25 of the largest metropolitan Statistical Areas in the U.S. Those for specific sections of the country will follow: the Northeast, Midwest, West and South.
The announcement by CBOE was made on Oct. 11, 2011. The composite index symbol is RPXCP. Quinn W. Eddins from Radar Logic wrote me in an e-mail dated Nov. 18, 2011, “We expect RPX futures to begin trading in late December or at the start of the New Year.”
RPXCP is of course different than SPXR, the Case Shiller S&P home price index. The latter is an index, a method of following the housing market, not a trading vehicle.
Experts say that real estate should be 5% to 10% of an investment portfolio. For many people this includes their home and Real Estate Investment Trusts (REITS), a market larger than U.S. Treasuries (see above). The latter is a way to capitalize on commercial real estate, not residential.
Now, there is a vehicle to do the same with residential. However, it still remains to be determined what percentage of the allocated 5% to 10% of a portfolio should be REITS versus residential.