In this month’s column in Project Syndicate, Robert Shiller writes about The Global Home writes about his company’s collaberation with the Chicago Mercantile Exchange (CME) to create a market for futures and contracts on home prices in ten cities in the US. This has been tried before and failed but under different market conditions and public awareness. The public is much more attuned to the housing market than ever before.

The futures markets on home prices will allow investors around the world to invest in US homes indirectly, by buying interests in them through these markets. An investor in Paris, Rio de Janeiro, or Tokyo will be able to invest in owner-occupied homes in New York, Los Angeles, and Las Vegas.

A fundamental principle of financial theory , “diversification” or ,”risk spreading,” implies that interest in the new contracts will be high. People and businesses in New York, for example, are overexposed to their local real estate risks, so they should reduce this risk by selling New York home price futures. People in Tokyo will assume some of this risk by purchasing New York home price futures if the price is right. The New Yorkers still live in their own homes, but now they have spread their investment risk worldwide.

To date, the information available is either government-based or trade group based and national in scope. There is a built-in bias and a delay in some of the reporting. The underlying concept of trading these futures is that investors will be better able to manage risk by creating an international consensus.

Its going to get interesting.