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Risky Realty

Real estate professionals and institutional investors see benefits in housing futures. But Dick and Jane homeowner, use caution.

This story appears in the October 2006 issue of Entrepreneur. Subscribe »

Housing futures, peddled by the Chicago Mercantile Exchange and the Chicago Board Options Exchange, are the new thing in finances this year. It's not surprising, given the increasing real estate share of the typical American's net worth and the recent attention to housing prices. But how useful are these futures for individual investors or homeowners? "They'll sell you hamburgers that clog your arteries, cigarettes that cause emphysema and now housing futures that add unmanageable risk to your lifestyle," says Tampa, Florida, financial consultant Michael Zmistowski. You're better off with Real Estate Investment Trusts focused on high-quality commercial properties, he suggests.

For the majority of investors and homeowners, he's right. The CME and the CBOE are selling slightly different products, but both are intended for institutional investors, real estate developers and high net worth homeowners in limited circumstances. Say you're planning to sell a $1 million home in Las Vegas, one of the 10 metro areas where the CME offers housing futures. (The 10 are also aggregated to create a national contract.) It could take months to find a buyer, during which time real estate could fall. You might not want to assume that risk if, for example, you've already bought a $1.5 million house elsewhere.

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