Hi everyone — the Case-Shiller data for August was released today. I am very busy this week so I’m going to put up a few graphs with a minimum of commentary.
Here is the nominal HPI decline since the November 2005 peak:
And here is the same series with the plain vanilla median and the size-adjusted median overlayed. The HPI is only available through August but I graphed the medians through September to show how much round two of the credit crunch has done to remove the artificial strength in the median-based indicators, especially the plain vanilla median.
Here is the same series deflated by the CPI. If you believe that the CPI has understated actual "inflation" in recent years, as I do, then the real decline from the peak has been even larger than the 14% displayed below. This graph at least gives a ballpark of real declines, however.
Here are long-term graphs of the HPI, nominal followed by real:
Note that round two of the credit crunch didn’t really show up in the price data until September, so it’s not actually reflected in the HPI numbers above. Nonetheless, the 1.3% month-to-month decline is the first we’ve seen since early 2007. I imagine that between seasonal weakness, increasing oversupply (in which the homes lost in the fire would only make a small dent), increasing must-sell inventory, and the phase 2 credit crunch, the HPI will continue to decline at a fairly rapid clip in the months ahead.
If a picture is worth 1000
If a picture is worth 1000 words that first graph is a novel.
It’s still a bit early to tell, but it looks like the downtrend has a more shallow angle than the uptrend that preceded it. This would be consistent with what we saw during the last bust – it took longer for the market to unwind than it took to get wound up. If so and assuming this market does wind up at or below the levels indicated by the long term trends, we have a long ways to go yet.
These graphs are vitrually
These graphs are vitrually unreadable without the Doug Henning background.
House prices will fall at
House prices will fall at least thru 2011 in San Diego according to bets placed by traders on the Chicago Mercantile Exchange housing futures contracts.
Source http://www.cme.com
Pricing on the housing futures contracts, based on the Case Shiller, are IMO the best predictor of future price trends, because they exclude anecdotal, book talking and Government
misrepresentation.
Obvioulsy it depends on the
Obvioulsy it depends on the date when you purchased. the 4th and 5th slides are a better representation of the market for the past 20 years.
Hey Rick,
Why am I the only
Hey Rick,
Why am I the only person in the world who cares about CME Housing Futures?
I mean, here I am posting the best predictive information and nobody cares. Go figure.
Sorry. Out of frustration I write this. Thanks for all you do, I really appreciate it.
Hey Rick
I was very
Hey Rick
I was very interested in your posting. Upon reading it, I went directly to the CME website. After some roaming I did find the section related to San Diego real estate. The problem for me is was that I couldn’t understand the charts I was reading. Could you explain what is happening, how the “products” are packaged, etc. Compared maybe to the average bag of bones on a park-bench, I am very well educated financially but compared to some of the folks around here I’m pretty ignorant. Options and futures are way beyond me – although I’d like to learn.
Nobis discendum est!
oxfordrick – FWIW, I am also
oxfordrick – FWIW, I am also very interested in the CME. They are a good indicator of where the market thinks prices are going in cases where people put real $ on the line. I think they are a reasonable prediction when a particular trend is in place, such as right now. However, I wonder how well they are at predicting the inflection points or turn-arounds.
My guess is that they are not as good at that. The reason is that although the fact that home prices were overvalued starting about 2002, estimating how much longer they would continue to go up and the turn-around point was very difficult. Some people started calling the top in 2002.
Oxfordrick, you’re certainly
Oxfordrick, you’re certainly not the only one who cares (although, judging by actual transaction volumes in these products, you might be).
I posted before asking help about this, and I guess this is as good an opportunity as any to do it again: can anyone recommend a broker dealing in CME Housing Futures? Any experience regarding volume, execution, margin requirements? I’m actually seriously interested in taking a position. Thanks in advance.
Pertinazzio,
yes the CME
Pertinazzio,
yes the CME site is a bit hard to navigate – for me the useful information is contained in the “real time futures quotes.” To simplify, the numbers quoted are essentially the “over-under” in betting parlance of where the players think the Case Shiller will be at specific points in the future.
As for contract specifics, I used to know but, as Daniel points out volume is very low. A couple of times I have asked my commodities broker whether he can place trades for me, and each time he has told me that volume is so low it’s not worth his time or my time taking a position.
Daniel,
if you can find somebody to take your trade – if you’re determined my recommendation would be to talk to the CME, they should be able to connect you – please let me know how you did it.
I kinda gave up on it – there are so many other ways to play this real estate fallout / credit dislocation debacle that I lost interest in trading CME Housing Futures – but I still feel it’s the BEST predictor of future pricing that I am aware of.
There two problems wih using
There two problems wih using CME Housing futures data to analyze the housing market (1) Lack of free historical data (if anyone can resolve this, let me know) and (2) the relative illiquidity of the marketplace due to its size. The Fed Board of Gov’s published a nice report on using housing data see: http://www.federalreserve.gov/pubs/feds/2006/200632/index.html
It’s a bit technical (and now a little dated) but they make good points about using CME data. Note that the open interest in SD housing futures was only 58 contracts or $3.6M which obviously wanes in comparison to the total SD real estate market or any other large price setting market mechanism (e.g., stock markets or currency/commodity futures). Note that open interest today (11/21) is only 72 contracts.