Hedging your house?

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SanMiguel

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Doubt this would be the time to do it but with all the talk of housing in the UK and also the likely fact that the US will reinflate the housing market (probably leading to another fall again), I was wondering how you might be able to hedge against any property you hold?
I know some brokers allow trades on the housing index but presumably you would have to take a leveraged trade to the value of your house per point on the index and short it?
Wouldn't the brokers run into trouble if everyone started shorting their indexes? They might not be able to sufficiently hedge their side as they'd have to only assets in property to do this.

Presumably other plays on this are to short housing stocks, REITs, or other but it would be a bit difficult to work out the ratio of your house to a stock.
I'm guessing this is more complicated by the fact that there might be residential property or commercial property downturns, differing index changes in areas, ie defensive areas/counties where the housing might be, etc.
 
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The problem that most people will have if they want to hedge their house is they want it both ways, ie no losses if it falls and profits if prices continue to rise.

Of course there's no way to get that short of hedge otherwise everyone would be doing it.

A hedge therefore means one won't lose if prices decline and won't make a penny if prices rise.

But what most people will do is hedge the downside risk and then complain bitterly that they made a mistake (with hindsight of course) if prices rise and they won't share any of the profit.

But if prices move lower it will all be down to their skill in forecasting prices.

But why hedge in the first place? Surely a house is a house not a speculation vehicle. If it goes down so what, if it goes up so what chances are you haven't made or lost any money anyway as all you're doing is tracking house price inflation. So if your house rises by 50% then most other houses will also have risen by 50%. Most people don't think this way and believe they've 'made' a lot of money. True, if you want to sell in London and move to Hull and true if you have a second home.

PS. Has anyone noticed the paradox with high house prices? Look where it got the world, the biggest depression since the 1930s and no way out of the mess for at least another 2 years. And people still think high and rising property prices are good :)
 
anley said:
The problem that most people will have if they want to hedge their house is they want it both ways, ie no losses if it falls and profits if prices continue to rise.

Of course there's no way to get that short of hedge otherwise everyone would be doing it.

A hedge therefore means one won't lose if prices decline and won't make a penny if prices rise.

But what most people will do is hedge the downside risk and then complain bitterly that they made a mistake (with hindsight of course) if prices rise and they won't share any of the profit.

But if prices move lower it will all be down to their skill in forecasting prices.

But why hedge in the first place? Surely a house is a house not a speculation vehicle. If it goes down so what, if it goes up so what chances are you haven't made or lost any money anyway as all you're doing is tracking house price inflation. So if your house rises by 50% then most other houses will also have risen by 50%. Most people don't think this way and believe they've 'made' a lot of money. True, if you want to sell in London and move to Hull and true if you have a second home.

PS. Has anyone noticed the paradox with high house prices? Look where it got the world, the biggest depression since the 1930s and no way out of the mess for at least another 2 years. And people still think high and rising property prices are good :)
Click to expand...

I agree if it's a long term investment then just leave it but I know of some people who hold houses as their pension either with intent to sell when retiring or maybe just to take rent (similar to a high yielder investment).
Those wishing to sell in a few years might be wise to hedge if the value is already at a good level?
 
In America I think you could get mortgages that could be considered closed by you defaulting and giving the bank the house... if you could get an equivilant thing here (doubt it) then you have a hedge against declining prices of sorts... take out the mortgage, stick it in a savings account, and if prices massively decline give the house to the bank. The price of this hedge is going to be the interest rate spread.

I don't actually know if this is possible, but that's a way to do it.
 
For someone with a house as a part of a pension, shouldn't they have more of hedge on the value?
It's similar to people who use high yielding shares as a payout for their pensions - lots of those who knew what they were doing, hedged the portfolio value before the crash and had at least saved up 2 years worth of dividend payouts. For a house, the rents cover the same thing, but the value of the house wouldn't be covered if it went down in a housing slump.
 
Ultimately hedging should never be considered by people who don't know what they're doing, which is 99% of home owners. Because -

1. It's complicated
2. They'll mess it up
3. They'll end up speculating (although they'll either never admit it or realise they're speculating
4. Speculating means 90% of them will lose money, and most importantly
5. Like I said above they'll whinge and whine if prices go higher as they won't be sharing the profit
 
SanMiguel said:
It's similar to people who use high yielding shares as a payout for their pensions - lots of those who knew what they were doing, hedged the portfolio value before the crash and had at least saved up 2 years worth of dividend payouts.
Click to expand...

Sorry but I know people and believe me most won't have hedged their portfolio before the crash but then most will tell you they did after the event.

Human nature never changes believe me.
 
Sell your house to property management company, deposit the money, ensure you get a rate that covers your rents. Stupid idea, wouldn't work but the most practical and realistic imo.
You start messing with financial instruments I'd guess it will only end in tears.
 
anley said:
Ultimately hedging should never be considered by people who don't know what they're doing, which is 99% of home owners. Because -

1. It's complicated
2. They'll mess it up
3. They'll end up speculating (although they'll either never admit it or realise they're speculating
4. Speculating means 90% of them will lose money, and most importantly
5. Like I said above they'll whinge and whine if prices go higher as they won't be sharing the profit
Click to expand...

I guess if you want to lock in the profit, instead of hedging, you should just sell now?

scose-no-doubt said:
Sell your house to property management company, deposit the money, ensure you get a rate that covers your rents. Stupid idea, wouldn't work but the most practical and realistic imo.
You start messing with financial instruments I'd guess it will only end in tears.
Click to expand...

There are property management companies that guarantee rents. Some people use them for the guarantee...not sure why, just as easy to self manage but then I guess if you don;t live near the place, you have to do something.
 
scose-no-doubt said:
You can't self manage after you sell it lol.
Click to expand...

Eh? WHat's that got to do with it? :)
I meant the options are sell it instead of hedging it because all the hedge does is lock in current profit or guarantee you don't get any further profits. Anyone taking a pension in the next 5 years has to decide whether to sell now or not.
Second, you could just keep the place as a rental income same as portfolios of high dividend shares, which don;t get sol often unless the dividend disappears.
 
scose-no-doubt said:
Is the house mortgage free?
Click to expand...

Not for around 5 years, which is about the time that things will either be better or the whole market will be swimming up sh1t creek :)

Edit: or should I say sh1t sea, we're probably up sh1t creek at present...
 
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