Friday, September 24, 2004

Buy A Put On Your House?

The current issue of Fortune Magazine has a cover story on the real estate bubble. The article is pretty decent. It points out that there has never been a decline in the housing market without a recession. It also talks about people buying new houses and reselling them a few months later to make huge amounts of money in places like Las Vegas, San Francisco, etc. It calls these people "speculators" and I would agree. They are buying at full price and hoping the price will go up. They have been lucky so far. When the market starts to drop, these people will go away, causing a glut of housing to come on the market, depressing prices, etc. The article also mention interest rates and ARMs and how foreclosures will likely rise because so many people have bought homes they can barely afford. All in all, if you are a wise investor who buys below market value, the collapse of the bubble shouldn't be anything to worry about. Indeed, it might be something to look forward to.

But what really struck me was a sidebar piece. The magazine talked with someone, I forget who, that said they were in talks with the American Stock Exchange (AMEX) to create stocks that tracks the housing markets in various areas of the country. Then, if you think you might have overpaid for your house, you could short this stock or buy a put to gain some protection from a possible decline. Interesting concept. I'm not sure if it will get off the ground, but it's something to think about. Since something similar has been done with gold, who knows...

The article can be found online at Fortune's website.

On a related topic, a newspaper article here recently talked about how developers in the greater Phoenix area are not selling new homes to investors, only to owner occupants, because the demand is so great.

(The original version of this post referred to Forbes magazine. In fact, it is Fortune.)


misteropus said...

The Sept 20th issue of Fortune also had a similar article.

Shaun said...

Oops. That was the magazine I was reading, not Forbes. The article can be found on-line here:,15114,693864,00.html

© 2006 Shaun | Site Feed | Back to top