There seems to have been a slight change in sentiment in the level of forward home prices over the last few days. Between the unemployment news on Friday (See Housing Wire article), a bearish call by Radar Logic (register on their site – click here -for a their analysis), or the trades on Friday, prices for longer contracts have edged lower.
One way to look at expectations to compare prices for the May 2013 Case Shiller futures (which will settle on the March 2013 index) versus the most recent release of the March 2012 indices. (Year-on-year numbers may be helpful in reducing seasonal factors that might otherwise distort period to period comparisons.)
Price changes (as measured from index to mid-market) for the next year are some of the steepest one-year chords over the next five years. Both SFR and WDC show ~5.0% increases, while even CHI and LAV (two of the weaker indices) are positive. Surprisingly (to me) NYM is the weakest one-year chord. A change in the level of distressed sales (between the winter of 2012 and 2013) might account for some of this improvement, but still the May ’13 markets show reasonable improvement.
I would remind traders that one way to expreass their views in this debate is the calendar spread markets. Here’s this morning (Nov/Nov) calendar spreads for the CUS (10-city) contracts. All one-year chords show HPA between 1.8 and 2.9%. All markets (as of this morning) are one-point markets, and all are for >1 contract. Any institutions (or traders) that want to expand the discussion of forward home prices are encouraged to add to either the bid or ask side, or to further narrow the bid/ask spreads.
Alternatively, I’m open to expanding this discussion to the ten regional contracts. Not surprisingly (given that the CUS contract is a weighted average of the ten underlying indices) some regions (e.g. NYM) show “shallower” HPA, while some (e.g. SFR) are more bullish.
Please feel free to contact me (firstname.lastname@example.org) to discuss calendar spreads, other aspects of housing derivatives, or to add fuel to the forward home price discussion.