Thursday, 27 August 2009

Betfair for house prices

Those of you who have used Betfair will know it works by the users themselves betting both for and against events; 'backing' or 'laying' in the jargon. Betfair just holds the stakes and pays out when the results come.

The Economist reports that a housing derivative has been set up in the US that allows homeowners to hedge against house price movements; like Betfair, users bet on whether house prices will rise or fall. Optimists are matched to pessimists, and 'bets' are fully paid up front. Unlike Betfair, the 'betting slips' can be traded, giving the derivatives liquidity.

I'm not quite sure why I don't think this will work, I just don't think it will. Inventive, though.


Nick Drew said...

Just before it went bust, Enron was planning to establish a derivatives market in UK (commercial) property values, with regional basis-points

in order to have a 'physical' core to the business (which tends to be useful, if not strictly necessary, for a market-maker in a derivatives market) its opening gambit was going to be to buy Canary Wharf (sic) ...

happy days

in purely technical terms there is no reason why this shouldn't work - assuming the demand exists, and I rather imagine it doesn't

(PS this whole topic has been discussed at modest length some time ago on the rather good Labour & Capital blog - but they don't have a search facility & I can't easily give you a link to the thread)

cameron said...

It will work, as in, it will make the company who issues the derrivitive profit. Whether it will serve a wider economic purpose. I don't know.