House Shares

The economic rumblings of the last few months have left the UK housing market’s foundations shaken.

According to RICS, confidence in the housing market slumped to its lowest point in 30 years in March. Elsewhere, Halifax offered little solace to homeowners and mortgage lenders, with reports of a 2.5% fall in house prices in the same month, the biggest monthly drop since 1992.

The primary cause behind the fall, the credit crunch, is a factor the housing market is still struggling with, but is this enough to maintain the downward trend in house prices? Or will low levels of unemployment – down by 39,000 in the quarter to March – low interest rates, improved earnings, up by 3.7% in February from last year, plus plain and simple demand for houses help stem the flow?

Spread betting on house prices

At IG Index you can take a position on house prices without the high-value overheads of actually buying property, such as stamp duty, agency and legal costs.

Our prices are based on the Halifax House Price Survey from HBOS - all you need to do is view our current quote for the index in a given future month and decide whether to go long or short.

We offer quotes for the nearest two quarters based on the housing market for the UK as a whole or for London alone.

Spread betting on housing shares

House prices are not the only indicators affected when the housing market changes – associated shares can also be affected. We offer many shares and sectors related to the market, from DIY companies to property developers and mortgage lenders.

Alternatively you might consider a sector bet on the Real Estate index in the FTSE 350, exposing yourself to the movement of the sector as a whole, without being exposed to the swings of any individual share. You can take a short-term view on the sector with a Daily Bet, or look to the longer term with a Quarterly Bet.

Spread betting on interest rates

Interest rates can also be affected by changes in the housing market: for example if falling house prices threatened to precipitate an economic slowdown the Bank of England might seek to help homeowners with their mortgage repayments by cutting the base interest rate.

Whether the banks changed mortgage rates accordingly would partly depend on whether LIBOR – the rate at which banks lend to each other in the wholesale markets – followed suit. While the base rate and LIBOR are historically closely correlated, the two figures have diverged as a result of the ‘credit crunch’, with anxious banks increasingly reluctant to lend to each other.

Example: 'selling' Short Sterling

You believe that 3-month LIBOR will fall so that the price of 3-month Sterling Deposits (usually called Short Sterling) will rise proportionately.

The market price for June Short Sterling is 95.14-95.15 implying an expectation that, in June, 3-month LIBOR will be 4.855% (100 minus 95.145). Our quote, which doesn’t include a decimal point, is 9513-9516. You choose to buy £100 per basis point at 9516.

After a few weeks, 3-month LIBOR has dropped to 4.325% and you decide to close your trade by ‘selling’ June Short Sterling at 9566 (the bid price of our spread 9566-9569 whose midpoint = 100 - 4.325%).

Your profit is calculated as follows:

Profit: 50 x £100 per point = £5000

For more information on Sector Bets and House Prices please see our Dealing Handbook.

Updated: 16/04/08

The above comments do not constitute investment advice and IG Index accepts no responsibility for any use that may be made of them.