James Surowiecki tackles the topic of housing futures in the New Yorker this week, giving the two players in the space, HedgeStreet and the Chicago Mercantile Exchange, a nice credibility boost. Housing futures are a new derivative product that theoretically will give homeowners the ability to buy insurance against a depreciation in the value of their home and speculators a chance to play the real estate market with having to own any hard assets. We think it makes a ton of sense. So does Surowiecki, but he wonders whether there may be psychological barriers to adoption:

Even today, it’s clear that otherwise rational people harbor deep-seated beliefs that make housing futures a tough sell. People generally don’t hedge individual investments, because they don’t like to limit their potential gains in advance. That’s especially true when it comes to housing, because of the ingrained assumption that, over time, real estate is guaranteed to be an excellent investment—even though Shiller, in a recent book, shows that, allowing for inflation, American home prices barely budged during the twentieth century. In that sense, the housing-futures market has what is known as a framing problem: selling a contract seems like betting on housing prices to fall, rather than simply insuring yourself in case they do. Emphasizing that the market is a kind of home-equity insurance might help; but even that’s no guarantee.

Which of you are going to think seriously about using housing futures as a hedging tool?
Financial Page: Through the Roof [New Yorker]