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Is There Hope Yet for MBIA?   Schrodinger's Option
Jun 13 2008 10:04AM EDT

A New Housing ETF From Robert Shiller

Up until now, Robert Shiller has been spectacularly unsuccessful in (a) finding ways for investors to short the housing market, and (b) designing ETFs. So, naturally, he's now trying to do both at once!

Matthew Hougan explains the idea - as is usual for Shiller, it all makes sense in theory. But before you try to use these new contracts to "trade the housing market like stocks", I'd give them a good year to see whether they really behave as they're meant to behave. And I certainly wouldn't try to use them to hedge a possible decline in the value of your house.

For one thing, Sod's Law says that the Case-Shiller index will rise even as the value of your own home declines, with the result that you lose on both sides of the hedge. And for another, it's far from clear that there will be enough liquidity in these instruments to be able to get in and out of house-sized bets easily.

Nevertheless, it would be great if these new ETFs do actually mange to achieve in practice what they're meant to achieve in theory. Especially for would-be first-time homebuyers saving up a downpayment but worried that they'll never be able to keep up with rising house prices, an investment in UMM might well make sense.

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