The Chicago Mercantile Exchange recently introduced the offering of housing based futures contracts to investors based on economist Robert Shiller's housing index model.

The futures offered by the Chicago Mercantile Exchange are based on the Case-Shiller Home Price Index for each of ten cities; Chicago, Boston, Las Vegas, Denver, Los Angeles, New York, Miami, San Diego, San Francisco and Washington. Investors can also buy contracts based on a weighted composite index for all ten cities. The average contract is around $55,000 and there are four expiration dates each year, currently this August, November, and February and May of 2007. Investors can purchase calls thus betting that the market is going up or puts, banking that prices are going to decrease.

Given the steep price of around $55,000 per contract, this is probably not an investment / hedging vehicle for small investors. In stead, this housing future options clearly has the large home builder, mrtgage lenders, land developers etc in mind. Even for these institutions, how much protection this offers is still not clear given the underlying housing market is not as volatile as stocks or commodities.