| Housing Futures Also Reflect Shifting Expectations |
| Written by Jonathan Smoke | |
| 02.28.2008 | |
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Discuss this article on the forums. (0 posts) 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. But look at the latest pricing curve, released yesterday by TFS Derivatives Corp. The futures are still pointing to declines this year in these markets, but inflection points are reached in two markets in November, and the extent of further decline in the other markets slows down significantly. By three years, the futures show prices rebounding and regaining much of the prior decline. I will reiterate points I’ve made before about the housing futures market. These futures are thinly traded. And the S&P/Case-Shiller 10 cities traded are almost the perfect representatives of the most significant bubble markets. In other words, they don’t individually or collectively represent the better conditions that exist in the hundreds of healthy and non-bubble markets around the U.S. With those limitations in mind, these futures pricing curves tell me that even for those extreme bubble markets that should have the most corrections to be made, the futures are not betting on this lasting more than two more years. Perhaps that’s why the Wall Street Journal is reporting on vultures swooping into markets like Miami. For what it’s worth the sentiment isn’t as positive for eastern cities, as there isn’t as strong a rebound in prices in their pricing curves, but all but Miami slow down the descent or stop declining after this year. My final observation is simply this: something has happened in the last few weeks to make the futures’ multi-year outlook more positive. It will be interesting to follow this over the coming weeks to see if this view continues. 
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