Thursday, August 19, 2010

Intrade Bets on Vancouver Housing

The poster Austin over at Realestatetalks has taken the initiative to set up an Intrade bet on the Teranet Vancouver HPI. Here are the two contracts:

https://www.intrade.com/jsp/intrade/common/c_cd.jsp?conDetailID=734327&z=1282235580558

This market is based on the monthly Teranet National Bank National Composite House Price Index for Vancouver (from the map on the main page click on the Vancouver pin to see the latest Vancouver index value).

The contract will settle (expire) at 100 ($10.00) if the monthly Index for Vancouver is 121 or less before the end of 2013.

The contract will settle (expire) at 0 ($0.00) if the monthly Index for Vancouver is not 121 or less before the end of 2013.

The index for each month, up to and including December 2013, will be reviewed when published. If the monthly index is 121 or less the contract will be expired at 100. If not the contract will be expired at 0 once the index for December 2013 is published.


And another:
https://www.intrade.com/jsp/intrade/common/c_cd.jsp?conDetailID=734326

This market is based on the monthly Teranet National Bank National Composite House Price Index for Vancouver (from the map on the main page click on the Vancouver pin to see the latest Vancouver index value).

The contract will settle (expire) at 100 ($10.00) if the monthly Index for Vancouver is 143 or less before the end of 2010.

The contract will settle (expire) at 0 ($0.00) if the monthly Index for Vancouver is not 143 or less before the end of 2010.

The index for each month, up to and including December 2010, will be reviewed when published. If the monthly index is 143 or less the contract will be expired at 100. If not the contract will be expired at 0 once the index for December 2010 is published.

These bets can behave weird if volumes are low. However if Vancouver residents and outsiders are in a betting mood, this trade could really take off. Place your bets (if you dare!) and good luck. I'll do a bit of analysis of the potential directions and values of the Teranet HPI, in the next 4 months and the next 2 years, in some upcoming posts.

Teranet's report from May 2010 Vancouver index = 155.23.

A value of 143 on December 2010 would equate to an average 1.17% monthly drop for the remainder of the year or a 7.9% drop from May 2010.

A value of 121 on December 2013 would equate to an average 0.58% monthly drop or a 22.1% drop from May 2010.

The June 2010 report will be out in about a week's time.

16 comments:

takloo said...

this is awesome news... i was just thinking about it... how do I go about shorting the housing market... if I buy a house, then I can hedge my exposure...

this is Canada's version of shorting the mortgage market :D

JimTan said...
This comment has been removed by the author.
JimTan said...

Actually, there are a lot of smart professionals in any futures/options market. It is likely that they will be ahead of you.

Anyway, I wonder how Jesse is going to bet?

jesse said...

I know how I would bet but there needs to be at least one other party involved on the other side. Spread the word, if nothing else for the good of science.

Chad_MPNP said...

Ya right good luck using this as a hedge. If your house is worth $1,000,000 you won't be able to find 1% of the liquidity for a hedge. If this instrument or something like it were more liquid it would be an absolutely amazing tool.

jesse said...

Who said anything about a hedge? LOL

Chad_MPNP said...

Fair enough, Jesse. Still, the bet size would have to be absurdly small.

jesse said...

The only way this bet can be a "hedge" is if there are decent odds. If betters decide there is a high probability of the bet paying off there is not much margin and requires too much money to be useful as a hedge. If the event is deemed improbable there is some value in taking the bet as a hedge. However if the odds are in a mid range it means the event is uncertain and still probable. But miss by one point and the bet fails. Eg if prices bottom at 122 and stay flat the hedger gets the shaft. I think the 2010 bet could be too close to call fwiw.

This does not mean distortions cannot occur so keep your eyes peeled.

JimTan said...

"Spread the word, if nothing else for the good of science."

Jesse,


This isn't science. This is about speculation, fear and greed. Don't ever forget that or you will lose your shirt.

jesse said...

"This is about speculation, fear and greed."

Betting on Vancouver's housing market? Pshaw.

takloo said...

where did all the housing bulls go? i mean the real-estate agents...

takloo said...

on a serious note... i think the odds are in favour of Vancouver market hitting 143 by dec 2010... CREA stats show a 5+% drop in prices... i doubt the teranet HPI will be much different

buff_butler said...

I think BOC long bonds would be better hedge for a housing crash personally. However the colapse in the curve recently I would be cautious.

david said...

"This is about speculation, fear and greed. Don't ever forget that or you will lose your shirt."

This is the smartest thing I have ever seen Jim post here.

austinvancouver said...

You can make bets as low as $10. I am very surprised after all the extremely confident proclamations about where the Real Estate market in Vancouver is headed, nobody seems to want to make money off of their oracular powers.

Ah well, I'm going to go lower the odds of 143 by year end. After the recent pop for June, it will now take a 10% drop in order to hit that price. Seems less likely now.

jesse said...

Hey Austin, the problem with these betting shops is getting enough critical mass.

The last downturn in 2008 took 8 months for Teranet to fall 10% from peak (chart). I would expect, if sales remain muted, that the Teranet HPI will be off around 5% by the end of 2010.