Will Real Estate Go Up or Down in 2006? Wanna Bet?

"Gambling" on the Future... I love billionaire Mark Cuban's inflammatory and provocative blog, BlogMaverick, covering investing, digital entertainment and (naturally) the NBA (he owns the Dallas Mavericks). Here's his recent rant on forecasting stock market performance.

"Every year at this time, everyone and anyone who has a vested interest in selling stocks comes out and talks about how great a year it's going to be in the stock market. Of course, it's all nonsense and [expletive deleted]. NO ONE knows what the market is going to do. Not timers. Not technical charts. Not economists. Not brokerage heads of research. Not stock pickers. No one."

Is the real estate market different? Do you think that you can predict its direction? If so, you can now back up your (hopefully!) sage analysis by buying (or selling) a real estate "derivative."

According to Seiler & Company's "Real Estate Report" (Jan/Feb 2006), "Real estate derivatives are a new type of investment that rewards investors based upon how the National Council of Real Estate Investment Fiduciaries (NCREIF) Capital Appreciation Index (CR NPI) [adjacent graphic] appreciates or depreciates over a period of time." A second real estate derivative tracks individual market sectors, like office or retail.

NCREIF's web site states that its Property Index (NPI) includes over 4,200 properties at a market value exceeding $150 billion. "Returns are calculated by NCREIF quarterly based on appraised values." In the third quarter of 2005, the NCREIF Property Index (NPI) rose 4.44% (Income 1.61%, Capital 2.84%).

Of course, real estate derivatives are aimed primarily at institutional real estate investors seeking to "hedge" their portfolios by reducing risks or improving returns -- not individuals seeking to invest surplus IRA funds. But I'm curious. Have any PikeNet subscribers invested in real estate derivatives? Are you bullish or bearish?

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-- Peter Pike