Some clever product designers are exploring how the S&P/Case-Shiller Home Prices Indices can be used to shift home price risk from one party who wants less of it to another who wants more. This article highlights one such solution. It is likely others will arise.
These products work by carefully matching investors who want to take opposing sides of a trade. The first task is for these parties to agree on a price, which, in the case featured in the article, is to be determined by the S&P/Case-Shiller Home Price Indices at a point in the future. The people using the product must also agree to a holding period for the transaction, that is, the timing for when they can exit.
It’s important that better tools emerge to help homeowners. A lot is at stake. Homes represent approximately half of the net worth of US households. Currently, this wealth is difficult to unlock without selling your home, which is a life altering move.
This article was written by Reid Steadman, managing director, non-equity indices, S&P Dow Jones Indices.
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