Are Shiller real-estate futures and options catching on with investors?
"The Case-Schiller macro derivatives market has seen very minimal activity.  For example, in the  three regional markets of San Diego (SDG), Boston (BOS) and Los Angeles (LAX) on 28 November 2011, there was zero trading volume, no trades settled, no open interest.  * Source: CME Futures and options activity[PDF] for all 20 regional indices.  Why haven't these real-estate futures caught on with investors?  Keep in mind that the CME introduced these indices, with support from Professor Shiller and partner Standard & Poor's several years ago. The CME seems committed to wait this out, as they have shown no indication of dropping the Case-Shiller indices. There are alternative real-estate investment securities to the Case-Shiller indices.  I don't think the market of investors is so small that Case-Shiller has been, in effect, ""crowded out"" by them. I think it is more likely a matter of known quantities. Also, I don't know how well these alternatives are doing! Additional reference: CME spec's for Case-Shiller index futures and options contracts." "In my experience, Shiller is always way before his time with his predictions and often it comes at too early a point for anyone actually making some money to care about. His view is very long term - and I trust his predictions, because he so accurately predicted so many of the homepocalypse, and the measures that would follow. He even predicted that there would be bailouts in his book ""Irrational Exuberance"".  His opinons were poo-poo'd as doom and gloom and manipulative until every piece started falling apart in the specific order of events (give or take) that they did.  I personally think people like Dr. Shiller make bold predictions that are hard to swallow. The derivatives market is a bit skittish about rolling into bull territory with any kind of housing index, but Warren Buffet's old adage to ""buy when everyone is selling and sell when everyone is buying."" (paraphrase). I see this as a good long-term investment because I trust Shiller's judgement, he stuck to his guns when the doubts were lobbed at him incessantly  (and Krugman, et. al. to some extent), and he turned out to be more than vindicated.  To me, these kinds of sources are usually pretty sound. The man knows what he's talking about, and I wouldn't mind picking up a piece of that action, especially if the market just doesn't trust any real estate investments. It's pretty easy to realize that right now housing will be undervalued and now that mortgage applications are (supposedly) stricter, I think there's a good argument to be made that this economist should continue to exceed expectations."
Real Estate potentially has two components of profit, the increase in value, and the ongoing returns, similar to a stock appreciating and its dividends.   It's possible to buy both badly, and in the case of stocks, there are studies that show the typical investor lags the market by many percent.  Real estate is not a homogeneous asset class. A $200K house renting for $1,000 is a far different investment than a $100K 3 family renting for $2,000 total rents. Both exist depending on the part of the country you are in.  If you simply divide the price to the rent you get either 16.7X or 4.2X. This is an oversimplification, and of course, interest rates will push these numbers in one direction or another. It's safe to say that at any given time, the ratio can help determine if home prices are too high, a bargain, or somewhere in between.  As one article suggests, the median price tracks inflation pretty closely. And I'd add, that median home prices would track median income long term.  To circle back, yes, real estate can be a good investment if you buy right, find good tenants, and are willing to put in the time.  Note: Buying to rent and buying to live in are not always the same economic decision. The home buyer will very often buy a larger house than they should, and turn their own 'profit' into a loss. e.g. A buyer who would otherwise be advised to buy the $150K house instead of renting is talked into a bigger house by the real estate agent, the bank, the spouse. The extra cost of the $225K house is the 1/3 more cost of repair, utilities, interest, etc. It's identical to needing a 1000 sq ft apartment, but grabbing one that's 1500 sq ft for the view. "I don't know much about New Zealand, but here are just some general thoughts on things to consider. The big difference between buying a house and investing in stocks or the like is that it is fairly easy to invest in a diversified array of stocks (via a mutual fund), but if you buy a house, you are investing in a single piece of property, so everything depends on what happens with that specific property.  This in itself is a reason many people don't invest in real estate.  Shares of a given company or mutual fund are fungible: if you buy into a mutual fund, you know you're getting the same thing everyone else in the fund is getting.  But every piece of real estate is unique, so figuring out how much a property is worth is less of an exact science.  Also, buying real estate means you have to maintain it and manage it (or pay someone else to do so).  It's a lot more work to accurately assess the income potential of a property, and then maintain and manage the property over years, than it is to just buy some stocks and hold them.   Another difficulty is, if and when you do decide to sell the property, doing so again involves work.  With stocks you can pretty much sell them whenever you want (although you may take a loss).  With a house you have to find someone willing to buy it, which can take time. So a big factor to consider is the amount of effort you're prepared to put into your investment.  You mention that your parents could manage the property for you, but presumably you will still have to pay for maintenance and do some managing work yourself (at least discussing things with them and making decisions).  Also, if you own the property for a long time your parents will eventually become too old to take care of it, at which point you'll have to rethink the management aspect. So that's sort of the psychological side of things.  As for the financial, you don't mention selling the house at any point.  If you never sell it, the only gain you get from it is the rent it brings in.  So the main factor to consider when deciding whether to buy it as a rental is how much you can rent it for.  This is going to be largely determined by where it is located. So from the perspective of making an investment the big question --- which you don't address in the info you provided --- is: how much can you rent this house for, and how much will you be able to rent it for in the future?  There is no way to know this for sure, and the only way to get even a rough sense of it is to talk with someone who knows the local real estate market well (e.g., a broker, appraiser, or landlord).  If the property is in an ""up-and-coming"" area (i.e., more people are going to move there in the future), rents could skyrocket; if it's in a backwater, rents could remain stagnant indefinitely. Basically, if you're going to buy a piece of real estate as a long-term investment, you need to know a lot about that property in order to make any kind of comparison with another investment vehicle like a mutual fund.  If you already live in the area you may know some things already (like how much you might be able to rent it for).  Even so, though, you should try to get some advice from trustworthy people who know the local real estate situation." I have considered doing the same thing. One idea I have tossed around is investing in a REIT. A REIT is kind of like a Mutual Fund for real-estate. They normally own a large portfolio of real-estate (perhaps apartments, or commercial space, etc) and by owning a share you get some of the upward swing, without the hassle of ownership (i.e. you can sell instantaneously). The REIT sometimes handles the whole lifecycle of property management: finding renters, collecting rent, maintenance, etc. There are a lot of public REITs in the US that you can buy. Another option might be to buy shares in a Home Building company like KB Homes.  Yet another option that ties onto your lack of retirement savings is the little known fact that after tax Roth IRA contributions can be withdrawn without penalty! Since 401ks can be rolled over into a Roth IRA (normally you have to leave your employer), in theory a 401k contributions can also be cashed out you just need to be careful about tracking your contributions. "Say the price is $200K. Would I, as a real estate investor, want to buy such a house? If the rent is $600, that's $7200/yr. ""the local property tax rate is levied on the tax base, and the applicable tax rate ranges from 0.40% to 0.76%"" so, I'll assume .5%, just $1,000. There are rules of thumb that say half the rent will go to maintenance and other costs, if that seems high, say just $2000.  We're left with $4000/yr. Less than 2% on the $200K investment. Italian bonds are yielding 8%.  As an investor, if I couldn't get more than $2000/mo gross rent, I would not buy the house for $200K.  As a parent, I'd have the money invested, have $16K/yr of income and help support you without taking all the risk the real estate investor has.  Note: your question and my answer are in dollars, but I acknowledge the Italy tag, and used Italy property tax. My tax is 1.6% of home value in my US city.  Edit: per the comment below, the 8% is incorrect. The return on the house purchase doesn't change, of course, but the safe yields are not that high, currently, 1%." "If you're asking this question, you probably aren't ready to be buying individual stock shares, and may not be ready to be investing in the market at all.  Short-term in the stock market is GAMBLING, pure and simple, and gambling against professionals at that. You can reduce your risk if you spend the amount of time and effort the pros do on it, but if you aren't ready to accept losses you shouldn't be playing and if you aren't willing to bet it all on a single throw of the dice you should diversify and accept lower potential gain in exchange for lower risk. (Standard advice: Index funds.)  The way an investor, as opposed to a gambler, deals with a stock price dropping -- or surging upward, or not doing anything! -- is to say ""That's interesting. Given where it is NOW, do I expect it to go up or down from here, and do I think I have someplace to put the money that will do better?"" If you believe the stock will gain value from here, holding it may make more sense than taking your losses.  Specific example: the mortgage-crisis market crash of a few years ago. People who sold because stock prices were dropping and they were scared -- or whose finances forced them to sell during the down period -- were hurt badly. Those of us who were invested for the long term and could afford to leave the money in the market -- or who were brave/contrarian enough to see it as an opportunity to buy at a better price -- came out relatively unscathed; all I have ""lost"" was two years of growth. So: You made your bet. Now you have to decide: Do you really want to ""buy high, sell low"" and take the loss as a learning experience, or do you want to wait and see whether you can sell not-so-low. If you don't know enough about the company to make a fairly rational decision on that front, you probably shouldn't have bought its stock." "I have a friend who had went on a seminar with FortuneBuilders (the company that has Than Merrill as CEO). He told me that one of the things taught in that seminar was how to find funding for the property that you want to flip. One of the things he mentioned was that there are so-called ""hard money"" lenders who are willing to lend you the money for the property in exchange for getting their name on the property title. Last time I checked it looked like here in Florida we had at least Bridgewell Capital and Fairview Commercial Lending that were in that business. These hard money lenders get their investment back when the house is sold. So there is some underlying expectation that the house can be sold with some profit (to reimburse both the lender and you for your work). That friend of mine did tell me that he had flipped a house once but that he did not receive the funding to that from a lender but from an in-law, however it was through a similar arrangement." "I think practically, although we most surely will have real estate ""bubbles"", nothing will hit 2008 style panic for a long time, as the banks are now not nearly as leveraged as they were back then. All large banks passed the feds ""stress test"" this year for the first time. Housing prices may drop a bit, and that correction may dip the market (or vice versa), but there will be much less damage to the economy." "I'm really surprised more people didn't recommend UGA or USO specifically.  These have been mentioned in the past on a myriad of sites as ways to hedge against rising prices.  I'm sure they would work quite well as an investment opportunity.  They are ETF's that invest in nearby futures and constantly roll the position to the next delivery date.  This creates a higher than usual expense ratio, I believe, but it could still be a good investment.  However, be forewarned that they make you a ""partner"" by buying the stock so it can mildly complicate your tax return."