RPX is a Residential Real Estate Home Price Futures Index which trades on CFE and provides an efficient way to invest in property……no loans, property taxes, or maintenance costs to worry about, or to hedge against declining home values. The contract was launched earlier this year and is beginning to see some traction. While open interest is rather low a market participant recently attempted to buy 26,490 contracts, a notional equivalent of $50m worth of residential real estate which garnered some industry-wide attention and suggested to some that we may be nearing a housing bottom.
RPX collects national home sales prices from 25 metropolitan statistical areas comprised of new and existing and single-family and multi-family homes. The data is calculated and converted to a price per square foot (ppsf) metric and published on a daily basis which provides a unique method to compare home values from around the country on a timely basis.
RPX is a futures contract that expires in March and September of 2012 through 2016 and can be used as an effective way to hedge home values. For instance, if an individual wanted to hedge a $500,000 home from now through September 2014 they would use the Sep. 2014 futures price (bid), currently trading at $194 ppsf and factor in the 10 multiplier to determine the notional value per contract. Next, they would divide the value of the $500,000 home by the $1940 ($194 x 10) notional value per contract to determine the number of contracts ($500,000/1940 = 258) needed in order to implement the hedge. Since RPX and housing values typically move in the same direction they would sell 258 contracts at $194, in an attempt to protect the $500,000 exposure from a price decline. Theoretically, if RPX decreased by 10%, or $19 to $175 before Sep. 2014 and the $500,000 home tracked the national average also decreasing by 10%, they would make $49,020 ($19x10x258) from the hedge offsetting most of the $50,000 ($500,000x.10) lost from the decline in the housing price.
Contrarily, if they thought housing prices were set to increase during the same time period and wanted to increase their exposure in the residential real estate market by $500,000 without buying a home they would purchase 258 contracts at $194 ppsf. For delayed prices on all the expiration months please visit http://cfe.cboe.com/products/RPX/ .