Tuesday, May 19, 2009

Shiller: Now You Can Short Housing

Friday, May 15, 2009 4:58 PM

By: Dan Weil Article Font Size

While the government is going through conniptions trying to stop investors from shorting stocks, housing guru and economist Robert Shiller is going the other direction.

He’s providing a security for investors to short the Case-Shiller home-price index. His firm MacroMarkets recently received approval for exchange-traded traded funds based on the index.

“One reason we have bubbles in the housing market is because there's been no way to short housing,” the Yale professor tells Time.

“The ability to short is essential to an efficient market, otherwise there's nothing to stop zealots from pricing things abnormally high.”

One version of the ETF (UMM) allows investors to buy the index.

“It's like buying a house, except you don't have to go through the real estate agent, take possession of a property, maintain it, rent it out,” Shiller says.

The other offering (DMM) provides an opportunity to short the index.

“Markets like this will also create an infrastructure for products,” Shiller says. “For example, insurers could issue home-equity insurance and then hedge themselves by taking a position in this market.”

As for housing’s current status, Shiller doesn’t think the market has bottomed.

“The conspicuous fact with our [Case-Shiller] data is that prices are still falling, although at a somewhat lower rate,” he explains.

Mark Zandi, chief economist of Economy.com, puts it in only slightly more optimistic terms.

“I think we’re clearly moving in the right direction,” he tells Bloomberg TV. “I think a year from now we’ll find a bottom.”

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