Monday, October 8, 2007

The future of housing in housing futures?

Really interesting article buried in last Thursday's WSJ on page D6. It discussed how housing futures are now being traded on the Chicago Mercantile Exchange. According to recent contract trading, analysis indicates that we can expect an average 10% drop in home prices through Nov 2011. Trading is market specific, and includes all census bureau MSAs....unfortunately they don't show Sacramento's projection in their graphic. Apparently this wasn't really news until recent changes made the S&P/Case Shiller based contract market applicable up to 60 months into the future.

Separately the same article also showed Sacramento inventory dropping by 0.4% while the 18 metro areas tracked rose by 1.2% compared to last month. They also noted that inventories were up 18% from a year earlier in the 17 metro area where they had comparable data.

Commentary: The timing of this article was incredible...I had just been thinking how interesting it would be to apply this technique to housing. I know they apply it to many things, including election outcomes. And it is becoming well known for its accuracy above and beyond the experts. After all people are betting money on their positions.

Inventory persistence (as I will call it from now on) looks to be occurring across the nation as bank and distressed properties stay on the market with no hope of finding buyers. I'm no real estate expert, but I imagine that previously sales activity would whittled down the inventory in fall and winter at a faster rate than new listings....which accounted for the decline in inventory. But with few sales, and more distressed listings being added, that relationship does not appear to be holding. This party just keeps getting more interesting!

Each day the WSJ ranks its articles based on most e-mailed and viewed online....guess which article ranked at the top on Friday!! Why they bury this stuff on page D6 is beyond me. Its important and interesting stuff, especially since everyone and their brother seems to blame their woes on housing these days.


buying time said...

I checked out the CME real estate futures and doesn't look like Sacramento is offered.

is the link to see the markets offered.

Lander said...

WSJ Link

Expected four-year change in average house prices:

San Francisco: -25.9%

Anyone want to guess what would happen to Sacramento if SF went down 26%?

Cmyst said...

A week or so ago I spoke with a person who had moved to Sacramento from San Francisco (one of only 2 people I've met who have done that, btw) about 4 years ago.
Her job here fell through, and she's working a lower-paying job. She does not have a house; she rents an apartment.
She hates it here, and would go back to SF in a heartbeat. And she lives in Folsom, which is pretty much as good as it gets for the Sacto area.
Her exact words were "it's embarressing that this cowtown is the capitol of California". (I had to defend us and point out that the cowtown reputation is long past and that Sacto is a very fine metropolitan area for nearly anyone who ISN'T from SF, LA or NYC.)

Sippn said...

Cmyst - she must miss the homeless and crazys - try the downtown mall.

BT - RE futures index is mearly a gamble - no underlying investment. You could short sell enough futures to hedge a home purchase, then stay even wether the market goes up or down.