Buyer drops offer by £27k

snoopy78

chucky wrote: »

and which property derivatives market is this!?!? please tell...

hahaha - let's just make things up and exaggerate

Chucky what are you banging on about there is a huge property derivatives market, especially here in the UK. All those organisations involved in mortgages will use these to some degree. Plus hundreds of others.

Most of them are predicting falls over the next few years and calling it a correction which implies they believe that when it stops falling it will be at a more realistic level (probable in relation to wages earned).

keeprenting

Maybe this link will help:

http://www.guardian.co.uk/business/2008/jun/09/housingmarket.houseprices

snoopy78

beinerts wrote: »

Agreed! I'm sure there would have been some news about this fabulous market! In reality it would be very difficult to set up. If you think about it, you couldn't hedge against the value of "your" home as that would mean millions of financial instruments and be unmanageable. At best, you could have contracts based on many indices covering different property types and areas (as there are many property "markets", not a single one) and even then, unless it was done to at least a "postcode" level of detail, hedging would be difficult. On the flipside, the problem with this is that unless there is a fair volume of sales, the indices won't be very accurate. Say only 3 flats sell in one month and only 1 mansion the next month, the index would show a steep price increase!

Given the amount of investment in property in this country, I'm sure such a market would already exist if it wasn't so complicated!

There are 3 main types of Property Derivative in use in the UK property market today:
1. Property Index Notes(PINs)
2. Total Return Swap (TRS)
3. Forward

keeprenting

snoopy78 wrote: »

There are 3 main types of Property Derivative in use in the UK property market today:
1. Property Index Notes(PINs)
2. Total Return Swap (TRS)
3. Forward

Don't know what a "PIN" is. The Observer link above refers to property futures (the only difference between a future and a forward contract is that a future is tradeable).

snoopy78

keeprenting wrote: »

Don't know what a "PIN" is. The Observer link above refers to property futures (the only difference between a future and a forward contract is that a future is tradeable).

Futures are for standardised amounts and set time periods, being the other major differences.

beer_tins

My understanding was that a PIN was like a bond, with no gearing.

Also, by "derivatives market" I imagine an exchange where contracts are freely traded. Something like LIFFE or the IPE, but for property. I was responding to the poster who said:

"The property derivatives market is predicting an inflation adjusted fall of 50%"

This conjures up an image of a thriving, highly liquid and transparent exchange where this kind of prediction is easily seen. In truth the property derivatives scene is not liquid or transparent. IMO to consider it a market, you would need to have a fairly high liquidity. At the moment, it is sporadic and derivatives deals aren't really available to retail customers. You need standardised values and time frames for this to happen and houses aren't like oil or wheat, they differ in too many ways.

There are not enough deals done, so even if you can find details of them, they don't really give a good indication of what "the whole market" will do. Even the indices that are used as underlying instruments aren't that useful as they lag the market and there is not enough trading done for a true indication (if every house sold every year there would be)!

In short, I was pointing out that the previous poster was talking garbage. I would have to ask for a link that shows me concrete figures (under significant traded volume and liquidity) before I pay any attention to the property derivatives "market".

beer_tins

snoopy78 wrote: »

Futures are for standardised amounts and set time periods, being the other major differences.

There is a set (but not standardised) time period for forwards as well i.e. they are defined on an individual basis. It is this kind of difference that means forwards don't have the same liquidity as futures.

snoopy78

beinerts wrote: »

There is a set (but not standardised) time period for forwards as well i.e. they are defined on an individual basis. It is this kind of difference that means forwards don't have the same liquidity as futures.

My description was not very good but meant the same thing, forwards basically agreement between two (or more) parties so can be customised, where as futures have standardised amounts and valid time periods before they close out.

beer_tins

keeprenting wrote: »

Maybe this link will help:

http://www.guardian.co.uk/business/2008/jun/09/housingmarket.houseprices

There are several problems with that article:

1) "according to a key index of property price futures". What index? Why not name the source?

2) "Indications from futures trading on long term property prices". There is no "futures" trading in property, but may let that go on a technicality. But "indications"? no facts or figures then...

3) "By the end of this year prices will be down by 10%" ... "and in addition the 8% drop in prices over the last eight months". So they are counting a drop of 10% this year as well as an 8% over the last 8 months?!

4) Using an inflation rate (4%) that takes no account of property costs for a study on property is simply idiotic. I think this figure is laughable anyway, we all know that the real cost of inflation is much higher.

Poor article. I am weary of news stories on property prices that don't use proper sources, poor maths, inappropriate figures and that aim to shock to sell papers.

I have no doubt that house prices will carry on falling for a while, but this is really "back of a beermat" stuff, as financial stories in mainstream media often are.

beer_tins

P.S. I didn't buy into the "talking the market up" rubbish any more than I do the "talking the market down rubbish". To take an article like that serious I would like to see the name of the index and the name of the trader/trading house quoted.

Also saying that prices will be down "according to the index" is rubbish, because the index itself will only use current data. An index is a weighted indicator, based on actual and current data.

I can't tell you how depressed I am at the quality of journalism I see all the time.