Protection Against Falling House Prices

How can you protect yourself against falling house prices? Our old friend Rick Ackerman makes a suggestion:

“Finally, there’s a way to literally bet against the house in the event of a real estate collapse. A California firm is offering cash on the barrel head for up to 15% of the value of your home in exchange for a 52.5% share of any capital appreciation when you sell it. We at Rick’s Picks have inferred that the intention of the company, San Francisco-based Real Estate Equity Exchange Inc., or “Rex,” as it is known, is not to insure homeowners against deflation, since Rex would never make such an offer if it thought real estate prices were about to fall.

“Consumers may not think so either, but with home prices across the [United States] already having declined 10 percent in the last year, it might look like a decent gamble, especially to that undeniably broad swath of Americans who are ‘asset rich but cash poor.’ From Rex’s point of view, it’s a straightforward way to earn 3.5% of the gains for every 1% it pays homeowners for the option.

“It’s not as crazy as it sounds, since the deal would allow consumers to tap the equity in their homes without incurring any debt or payment obligations. There would be no taxes on the cash received, and property owners would have up to 50 years to sell, according to Investment News, a weekly newspaper for financial advisers that reported this story in its February 12 edition.

“My prediction is that this product will prove to be so popular that Rex and its backers will close the door to new business within 18 months. Assuming the venture is moderately successful and Rex strikes a deal with, say, 50,000 homeowners living in dwellings with an average value of $500,000, the firm and its partners would be on the hook for $3.75 billion should real estate prices merely stagnate.”

Markets and Money


Markets and Money offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, Markets and Money delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors. Founded in 1999, Markets and Money is published in 7 countries with a worldwide readership of almost 1 million people.

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