Housing Derivatives

Housing Needs a Derivative Based on Sales
Written by Jonathan Smoke   
11.18.2008
For residential real estate in the U.S., derivatives remain a relatively esoteric concept. For more than two years now, futures based on the Case-Shiller 10-city composite price index and underlying market price indices have been traded on the Chicago Mercantile Exchange.

Trading volumes for the CME housing futures remain relatively thin. Brokers and analysts are perplexed why builders and developers haven’t widely adopted them in such a challenging market.
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Housing Futures Predict Bleak Future
Written by Jonathan Smoke   
10.29.2008

I enjoy reviewing the weekly TFS Housing Market Metrics report produced by the US Property Desk of Tradition Financial Services. Their report summarizes the current housing future settlement prices from the CME as well as other spot and OTC metrics.

This morning’s report hit my inbox as I was reviewing yesterday’s S&P Case-Shiller release of August home price indices. The August Case-Shiller price indices showed poor performance for the tracked markets compared to July and August 2007. The only “bright spot” in the report was that the “acceleration in decline was only moderate in August.”
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Listing Price Trend Is Less Positive for 10-City Composite
Written by Jonathan Smoke   
05.13.2008
Yesterday I spotted some light at the end of the tunnel when I saw that price and absorption trends in the listings of homes for sale where both moving in an upward direction. That was based on a 25-city national composite and powered by our new Home Sales Trends intelligence.

One of our astute subscribers quickly pointed out to me that the 10-City Composite, which tracks the S&P Case-Shiller Index traded on the Chicago Mercantile Exchange, wasn’t so encouraging. The chart as of yesterday, courtesy of Altos Research, shows that while the 90-day price trend is slightly upward, the 7-day price trend fell through the 90-day trend in April and hasn’t recovered.
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Housing Futures Also Reflect Shifting Expectations
Written by Jonathan Smoke   
02.28.2008
The relatively thinly traded Housing Futures on the Chicago Mercantile Exchange have been decidedly bearish about the future. As extended multiyear contracts began trading, the view out for each of the 10 cities and the 10-city composite has been negative.

At the beginning of 2008, that negative view was apparent. For example, each of the west cities, as illustrated on this January 8, 2008 price curve chart from TFS Derivatives Corp, showed declines at least for another two years but most declining three full years.
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Pondering Housing Futures’ Inflection Points
Written by Jonathan Smoke   
11.28.2007
To our loyal readers, I humbly apologize for not posting any new commentary for a week. First it was turkey, then football, and this week a never-ending litany of depressing but not that informative news.

Let me recap the news this week: Prices are down. Sales are down. Inventories are up. Housing malaise and foreclosures may sink the whole US into a recession if exports and investments from Middle Eastern sovereign funds don’t save us.
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