Case Shiller Housing Market ETFs Start Trading on NYSE

June 29, 2009

by Mike Simonsen


Robert Shiller’s firm MacroMarkets has worked over the last few years to create invest-able securities that actually reflect the state of the $20 trillion US real estate market. (Yes, even after the bubble burst, it’s still worth $20 trillion.) The firm first spearheaded futures and options traded on the Chicago Mercantile Exchange several years ago.  Some structural hurdles prevented those markets from really taking off. So the team at MacroMarkets has created a new security, called MacroShares, that price according to the Case Shiller Index.

Here’s a (vastly versimplified) nutshell about how they work:

The securities are listed on the NYSE Arca. You can buy and sell them like any stock.

  • Major Metro Up (NYSE: UMM) is how you “go long” US housing. You buy the UMMs when to benefit from a rising US real estate market.
  • Major Metro Down (NYSE: DMM) is how you “short” US housing. You buy the DMMs when you want to express a bearish position on the housing market.

That part’s pretty straightforward. But there are some complications. These are not stocks, and not exactly exchange traded funds (ETFs) either. Unlike most exchange traded funds they own none of the underlying asset. (Gold ETFs buy gold, Oil ETFs buy oil, etc.) In this case they hold US treasuries. The MacroShares also trade in pairs and the underlying cash moves from one to the other. When the Case Shiller Index (the S&P CSI 10-city index to be precise) moves up,   in a direction, the treasuries move from the DMMs to the UMMs.  Note the price of these things will also be a function of the market demand. So if a bunch of you think the market’s going to go up and buy accordingly, the price of the UMM is going to climb.

For investors these are truly landmark opportunities. Housing and real estate returns have low or negative correlations with other asset classes. A good investor diversifies. Previously, to diversify via real estate, you’d buy buildings or some proxy for real estate, like the highly volatile home builder stocks.  UMM is the first opportunity for you to directly invest in the real estate market with essentially no transaction costs.

For hedgers (people who already have serious exposure to real estate) this is really the first chance you’ve had to protect against the downside without acutally selling your buildings. Now you just buy the DMMs. When the national real estate market declines, the DMMs increase in value.

Or, if you’re a real estate pro and you’re sensing a turnaround before they start yammering about it on CNBC, now you can go long and profit from your insights.

What does Altos data say about where the market is heading?

This part is so much fun. We at Altos Research track the real-time data for the same real estate markets in the S&P Case Shiller Index. The Altos 10-City Composite includes New York, Los Angeles, San Francisco, Chicago, Washington DC, Boston, San Diego, Miami, Denver, and Las Vegas.

Altos 10 City Composite

Altos 10 City Composite - Median Prices for single family homes. Data as of June 26, 2009.

Our national data has been climbing with the spring seasonal demand, crazy low interest rates, and perhaps dead-cat bounce after a two year fall.  We’ve now had four down weeks in a row as the summer kicks in. And Because we watch the active market, our data leads the Case Shiller numbers by at least 90 days. Keep that in mind.

The MacroShares UMM and DMM IPO tomorrow June 30, 2009. The world will be a better place for it.

Some useful links on the topic:

Some disclaimers:

  1. This is a highly oversimplified description of these securities. Make sure you do a lot more research before you start throwing your money around.
  2. In fact, don’t take any trading or investment advice from me or Altos Research. We do real estate data and don’t even pretend to offer investment advice. I’ve proven over and over that I am a lousy trader. Look at the data, make your own trades, cowboy.
  3. Altos Research is working with MacroMarkets to help their clients understand the real estate market. But we don’t get any financial benefit promoting these securities.
  4. I’ve done a lot of writing over the years on the pros and cons of the Case Shiller Index and its usefulness as a yardstick for the real estate market. I’m not going to go in to the details here but let me summarize: If you want to understand how to price a home, the CSI is not useful. If you want to understand the dynamics of a local market, zip code, neighborhood, there are lots better local ways. If you want to know what’s going on right now the CSI is not going to help. However, if you want to get a feel for the general direction of home prices in this country the CSI is a reasonable as anything.

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