Congress
The general elections are fast approaching, and the big question on everybody’s minds is, “Will the Republicans lose control of Congress?” To answer that question, I like to turn to the financial markets.
The Dow has been hitting record highs lately, and oil has backed off significantly from its summer peak. Both of these metrics have a profound psychological impact on the populace, but their connection to the election is capricious at best. I prefer to look towards an exotic futures market for my political insight.
As I’ve mentioned in the past, the University of Iowa runs a futures market for the outcome of major US elections. A really simple, hand-wavy explanation is that the market allows investors to put their money where their mouth is; this is a real market where people win and lose real money. Contracts are available for control of the Senate, control of the House, and overall status of the Congress.
This sort of market tends to be good at predicting the future because its participants tend to make transactions that they think will be most profitable regardless of their heart-felt biases. To wit: if a Democrat really wanted to see the Dems win the House but saw all signs as pointing towards continued Republican control, he would buy a contract that would make him a profit if the Republicans kept power.
What are the markets currently predicting? It depends on which market is being evaluated, but in general, the consensus is that the Republicans will lose the House. The Senate race is less clear, but at the moment, the signs suggest that the Democrats will not control the Senate. It will be interesting to see how accurate the markets are. Historically, they’ve been pretty good at a few weeks out, but the markets incorrectly called the Senate outcome for the last mid-term election.
Speaking of futures markets, check out the new housing futures. That market is currently predicting a 7% drop in home values nation-wide by August 2007. Might want to hold off on that home purchase just a bit longer…
Are housing futures only offered on the nationwide average, or are there local markets as well? I’m moving to New York City in August, and am wondering if it’d be better to rent (my current plan) or go ahead and take out a $half-million mortgage on the hopes that the value will go up by the time I leave New York. (…#@^$#^)* expensive city.)
Another interesting market would be the rentals futures, i.e. what people think rent prices will do.
Yes, there are futures available for individual markets. Poke around that site’s real estate section to find them. The problem is that the housing futures market is quite new, so the low volumes might be affecting the accuracy of the predictions.
Another source of housing data is Moody’s home price forecast, which is predicting a decline of about 3.5% in home values between now and 2008Q4 for NYC.
I agree that a rental futures market would be interesting. I suspect that it would be far less volatile than the housing market. That said, there’s probably significant upside potential in the short term; the WSJ ran an article not too long ago about rising rental rates.
I would like to become an authorized vendor with the Bonneiville Club but cannot figure out how to contact the club. Can you help me? Ken