UK House Prices Futures Market Analysis
Housing-Market / UK Housing Nov 15, 2004 - 12:00 AM GMTBy: Nadeem_Walayat
Futures markets are primarily to hedge against future price movements. So people can 'lock' in a price now and take uncertainty away.
Obviously with house prices, were more talking profit and loss gambling, but if you are looking to sell your house in 15months time, and the futures were at a premium then you could have locked in that price, then you would have the certainty of knowing that, that is the price you will get, i.e. if by then house prices have fallen, you will get less from your sale but have made a profit on the futures. If house prices have risen more than the futures, then you will get more from your sale but have a loss on the futures.
So in time of uncertainty the futures markets are good for hedging risks by experienced investors.
The prices are at a premium or discount to the spot price, depending on market sentiment and trend, thus 'IF' you get the timing right, you can make a killing in a short period of time. But it IS a gamble !
Okay here are the current house prices futures for the UK (IG Index). - Selling prices.
UK National -
Sept 04 162.5
Dec 04 159.9
March 05 158.6
June 05 154.1
Sept 05 148.2
Dec 05 145.2
Basically what the figures are saying is that the futures market is pricing in a fall between Sept 04 and Dec 05 of about 11%.
Now throw in the effect of trend i.e. trends tend to over-extend which should suggest add on 5% = 16%, Through in that in a sellers market you can offer substantially less than the asking - that's another 4% - That suggests a 20% drop by next December in actual house prices !
House price futures are also available on a regional basis.
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