Could Home-Priced Insurance be a Contrarian Indicator?
SmartMoney ran an interesting article this past week on insuring against a
drop in home prices. In short, the article focused on how underdeveloped the
market for hedging and insuring against falling home prices is and how it is
starting to develop.
Up until recently, the only way to insure a home against falling prices was
to buy futures contracts on home prices in 10 metropolitan areas, including
Boston , Miami , and Las Vegas . Of course, if you didn’t live in one of the
10 metropolitan areas, you won’t be perfectly insured. If you lived in Reno
and bought futures contracts based on home sales falling in Las Vegas , you
could still lose if Las Vegas home prices rose while Reno home prices fell.
Today, firms are beginning to sprout around the country offering direct
insurance for local markets. One, Home Headquarters, a nonprofit, sells
insurance at a cost of 1.5 percent of the home’s value for homes located in
Syracuse , New York . More firms are set to enter the market this year.
This tells us something: new products (and articles about them) tend to
proliferate toward the end of a strong trend – either down or up. Perhaps
this latest data point on insuring against falling home prices, combined
with all the other negative data points on housing, is a sign the end is
near in a good way.
Peace, Love and Gumbo
Marvin LeBlanc,
