Forum Index
Boston Bubble - Boston Real Estate Analysis
 FAQFAQ   SearchSearch   MemberlistMemberlist   UsergroupsUsergroups   RegisterRegister 
 ProfileProfile   Log in to check your private messagesLog in to check your private messages   Log inLog in 

Go to: Boston real estate bubble fact list with references
More Boston Bubble News...
DISCLAIMER: The information provided on this website and in the associated forums comes with ABSOLUTELY NO WARRANTY, expressed or implied. You assume all risk for your own use of the information provided as the accuracy of the information is in no way guaranteed. As always, cross check information that you would deem useful against multiple, reliable, independent resources. The opinions expressed belong to the individual authors and not necessarily to other parties.

S&P/Case-Shiller Boston Snapshot: Aug 26, 2008

Post new topic   Reply to topic Forum Index -> Greater Boston Real Estate & Beyond
View previous topic :: View next topic  
Author Message
Site Admin

Joined: 14 Jul 2005
Posts: 1824
Location: Greater Boston

PostPosted: Wed Aug 27, 2008 4:10 am GMT    Post subject: S&P/Case-Shiller Boston Snapshot: Aug 26, 2008 Reply with quote

On Tuesday, August 26th, Standard & Poor's released the S&P/Case-Shiller housing price index data for June 2008. Boston prices fell 5.2% from one year earlier, in nominal terms, as previously reported (Info/Broken?).

The August 2008 futures contracts for the index, which cover prices in the second quarter of 2008, were also settled on the same day. When the extended S&P/Case-Shiller futures were first introduced, Mike suggested that somebody archive the predictions of the futures contracts, and I proposed that a good time to do that would be each day that a futures contract is settled (i.e., quarterly). This post is an attempt to provide such a time capsule for the future.

Below are two graphs of the S&P/Case-Shiller Index for Boston from 1987 through the present (shown in solid purple), with the expected future values added using the values of the futures contracts on the indicated dates:

The market is pricing in the following with respect to nominal housing prices through 2012 Q3:

  • An additional decline from the most recent month of 9.44%.
  • A total decline from the peak of 19.43%.

The market expectation implied by the closing values of the futures contracts on August 26th is that nominal prices will continue to decline through 2009 Q1 and then remain relatively flat through 2012 Q3, which is as far into the future as they go. In previous snapshots, the futures implied declining prices through 2010 Q1 with relatively flat nominal prices thereafter. The movement of the nominal bottom from 2010 Q1 to 2009 Q1 is in large part due to the expected decline by 2009 Q1 growing deeper than before. In other words, the expected decline is as large as before, it is just expected to happen sooner.

The implied price for 2012 Q3 is once again the lowest future point on the chart. Some values from 2010 and 2011 now match it as well because that portion of the curve has shifted downward. The other surrounding values are close enough together and the end value has been fluctuating enough that thinking about the time period after 2009 Q1 as flat is probably a reasonable approximation.

Of course, flat nominal prices imply falling real prices when inflation is present (and it is). Here is the same data adjusted for inflation using the Bureau of Labor Statistics' CPI-NU series and the adjusted 10-year TIPS-derived expected inflation from August 25th, expressed as a percentage of real prices from the most recent month:

The market is pricing in the following with respect to real housing prices through 2012 Q3:

  • An additional decline from the most recent month of 20.29%
  • A total decline from the peak of 36.76%.

Note that the volume on these contracts is currently very sparse, and so using them to predict future housing prices should be viewed as unreliable. However, bear in mind that other sources of predictions are most likely even less reliable, especially organizations like The NAR which have a disincentive for accuracy. The futures markets are probably the least biased predictor available, given that those trading the contracts have a direct financial incentive to be accurate (real money rides on the accuracy).

Also note that the contract values might not necessarily reflect the expected value of the index if there are unaccounted opportunity costs involved. This was discussed in some detail in the original thread when the extended futures debuted. It is my current understanding that both the buyer and seller would have the same opportunity costs (a performance bond and transaction costs), and these costs would therefore offset each other when viewing the value as predictive. This could be wrong, though. If you would like to discuss this point, please read the original thread first since there are some references there to support the assumption of symmetry.

The settlement data for the futures contracts on the 27th was:

  • Aug '08 162.32
  • Nov '08 160.20
  • Feb '09 154.00
  • May '09 150.00
  • Aug '09 151.00
  • Nov '09 149.40
  • May '10 148.00
  • Nov '10 147.00
  • May '11 147.00
  • Nov '11 150.00
  • Nov '12 147.00

Previous snapshots are available for:

Please do try this at home, in order to bring to light any errors. The data used for the above report was obtained from the following sources:

The text of this post and the associated graphs are Copyright 2008 by with all rights reserved, except as stated here. You may reproduce the graphs individually or the text of the entire post as a whole (including graphs) under the Creative Commons Attribution-No Derivative Works 3.0 Unported License. You may additionally scale the graphs to fit your work. Alternatively, if you remove the signature from the bottom left hand corner of the images within this post, those modified images (and only those modified images) can then be distributed under the Creative Commons Attribution 3.0 Unported License. In all cases, attribution should be made via a hyperlink to or Quoting excerpts of the text is also allowed provided that the quotes would normally fall under fair use. To request other terms for reproduction, please post your request in the original thread at

The latest version of this report can be found at

- admin
Back to top
View user's profile Send private message Send e-mail Visit poster's website
Display posts from previous:   
Post new topic   Reply to topic Forum Index -> Greater Boston Real Estate & Beyond All times are GMT
Page 1 of 1

Jump to:  
You can post new topics in this forum
You can reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum
You cannot vote in polls in this forum

Forum posts are owned by the original posters.
Forum boards are Copyright 2005 - present,
Privacy policy in effect.
Powered by phpBB © 2001, 2005 phpBB Group