Home Futures Are Hedge Tool.(Robert J. Shiller)

DANA POINT, CA -- At the 2006 Predictive Methods Conference here, Robert J. Shiller, chief economist and co-founder of Macromarkets, predicted a decline in housing prices and called for more historic data to create a better method for detecting future home prices.

In fact, he and executives from a consortium of firms believe that the best way to predict future home prices is to create a market that will predict them. Macromarkets, together with the Chicago Mercantile Exchange, Standard & Poors and Fiserv, primarily through its Case Shiller Weis subsidiary, began trading such home price futures for 10 major U.S. markets about a year ago. While Mr. Shiller pointed out that the historical data over the past year is not sufficient to make any statements about future home prices, he is confident that as the market matures and more liquidity flows into it, solid predictions of future home prices will result.

But will investors embrace home price futures? Mr. Shiller believes they will as they can be a good hedge for investors that are overexposed in other areas. He pointed to investments made in oil over the past 20 years and noted that while the price of oil has risen and fallen over time, investors that took a long position in oil price futures saw returns on par with the stock market. Mr. Shiller expects investors in home price futures to do as well, even though he expects to see some home prices fall in the future.

According to Mr. Shiller, housing prices don't always go up and a good investment may depend more upon area rental rates than the value of the home. "Trends are what dominate most people's thinking when they forecast home prices, but in real terms, homes have not appreciated ...