This morning I was reading Money Stuff by Matt Levine on Bloomberg, and it got me thinking about how risk can be hedged today in ways that simply didn’t exist in the past.
For most people in developed countries, life is economically concentrated around two main assets: their job and their home. The first is exposed to cycles, technology, and career risk. The second is exposed to market prices. And unlike what we like to believe, a house can lose value — sometimes for long periods of time.
So the question naturally becomes: how do you manage that risk?
In theory, one answer is a derivative hedge — a financial contract whose value moves in the opposite direction of the risk you are trying to protect. If your asset loses value, the derivative gains value. If your asset gains value, the derivative loses value. The net effect is not to eliminate risk, but to reduce it. You’re not selling the house; you’re trying to offset part of its price volatility.
This idea isn’t new. Robert Shiller was already writing about housing price derivatives back in 2008, imagining liquid markets that would allow homeowners to hedge downturns just like investors hedge equity risk. Conceptually elegant. Practically, much less so.
These markets never really took off. They remain thinly traded, illiquid, and largely confined to the US and the UK. For ordinary individuals, they are hard to access and, frankly, not very compelling. Even today, the idea that a homeowner actively hedges house-price risk through regulated futures markets feels more academic than real.
More recently, a new path has emerged through prediction markets — platforms that allow people to take positions for or against specific future events. A well-known example is Polymarket (in US), not allowed in Singapore for example!), originally designed to aggregate collective intelligence by letting prices reflect real-time probabilities rather than opinions. Lately, these platforms have started offering markets linked to housing price indices, allowing traders to speculate on — or hedge against — broader real-estate trends.
This is clearly not the same as hedging the value of your individual home. But if a reasonably representative index exists for your city or area, it does offer at least a partial way to protect against a generalized market decline.
And yet, this is where my doubts start.
Just like traditional derivatives, these tools are not really open to everyone. More importantly, they risk behaving more like bets than hedges. It’s entirely possible to lose more money on the hedge than the upside your house would have delivered if prices rise. Instead of reducing risk, you may simply be adding a different kind of risk on top of real-estate exposure. They looks like gambling more than finance (the reason why in place as Singapore they are not allowed)
Markets like Polymarket often feel closer to betting platforms than to mature financial markets. On the other side, the regulated markets where one could theoretically trade futures on housing prices in a specific area are niche, inaccessible, and — judging by their track record — not particularly successful.
What remains unresolved is the core issue.
One of the two most important assets most people own can decline in value and deteriorate over time, without any real safety net. This sits uncomfortably alongside the widespread conviction that investing in real estate is always a winning move.
Personally, I’ve never fully bought into that narrative.
Homes are illiquid, undiversified, and deeply tied to a single geography. They feel safe mostly because they are familiar. Until we find credible, accessible ways to manage housing risk, the largest financial decision most people make in their lives will remain largely unhedged — and pretending otherwise may be the real illusion.
