I’m not claiming to have constructed as such, I’m claiming that with covariance data such a thing could be constructed. There are things like inverse real estate indexes, so whatever they do to construct their shares could be tuned for the same purpose.
edit: thinking about it more, wouldn’t a person want an asset anti correlated with their own future cash flows? You’d want to account for rent and unemployment and predictable changes in future cash flows. What else?
So is the bet for the construction of a financial instrument that moves like a leveraged case-shiller housing index for a selected city with tracking error + fees smaller by some factor than the average frictional costs in the buying market?
edit: oh in this model we’re mostly concerned with the rent hedging value rather than the speculative value (that being seen as mostly a thing that subsidizes the rent hedge here) so we’d really want something that pays you when the rent index deviates substantially from its trend. If we were happy with just hedging the long term trend I think that could be done cheaply with fixed income levered appropriately, but I’d have to show that it won’t suddenly change correlations under various conditions.
edit 2: I think there’s some aether variable-ing going on here. Rental market are much more liquid and display lower volatility than housing markets. So in order to purchase a hedge against rental price (cash flow) appreciation we expose ourselves to much more volatile net worth swings? That only makes sense for people with poor savings (almost all ‘normal’ people. But normal people aren’t trying to buy in the most expensive markets anyway).
Housing markets move because they depend on the expectation of future rents. If I want to expose myself to future rents, I have to take on volatility in the expectation of future rents, that’s how the game goes.
I’m not claiming to have constructed as such, I’m claiming that with covariance data such a thing could be constructed. There are things like inverse real estate indexes, so whatever they do to construct their shares could be tuned for the same purpose.
edit: thinking about it more, wouldn’t a person want an asset anti correlated with their own future cash flows? You’d want to account for rent and unemployment and predictable changes in future cash flows. What else?
I’ll bet against.
So is the bet for the construction of a financial instrument that moves like a leveraged case-shiller housing index for a selected city with tracking error + fees smaller by some factor than the average frictional costs in the buying market?
edit: oh in this model we’re mostly concerned with the rent hedging value rather than the speculative value (that being seen as mostly a thing that subsidizes the rent hedge here) so we’d really want something that pays you when the rent index deviates substantially from its trend. If we were happy with just hedging the long term trend I think that could be done cheaply with fixed income levered appropriately, but I’d have to show that it won’t suddenly change correlations under various conditions.
edit 2: I think there’s some aether variable-ing going on here. Rental market are much more liquid and display lower volatility than housing markets. So in order to purchase a hedge against rental price (cash flow) appreciation we expose ourselves to much more volatile net worth swings? That only makes sense for people with poor savings (almost all ‘normal’ people. But normal people aren’t trying to buy in the most expensive markets anyway).
Housing markets move because they depend on the expectation of future rents. If I want to expose myself to future rents, I have to take on volatility in the expectation of future rents, that’s how the game goes.