I came across an interesting site today, called Hedgestreet, that let’s users profit in the event of a real estate downturn.

Users can for instance speculate as to whether the median home price in Los Angeles will be above $550,000 on August 11, 2006. The settlement source is the National Association of Realtors.

Hedging is a financial instrument that allows investors reduce exposure in one market by effectively betting against it in another. So for instance if you were a home owner in Los Angeles (and exposed to the fluctuations in real estate prices), you could sell contracts against the Los Angeles media home price. That means that if, for instance, home prices went down you would lose money on the value of your home but make money on your Hedgestreet contracts.

Here’s more on the company and how the trading works.

ZipRealty, a brokerage that offers homeowners a discount commission, has an interesting post analyzing the markets it operates in (think major metros in large states) and the percentage of homes that have been reduced.

The winner? Newton, MA, where according to ZipRealty, more than two out of five homes on the market have been reduced.

Of course, that could be indicative of realtors being more optimistic and then having to re-price. Fascinating reading, nonethess.