bostonbubble.com Forum Index bostonbubble.com
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: Feb 24, 2009

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


Joined: 14 Jul 2005
Posts: 1818
Location: Greater Boston

PostPosted: Fri Feb 27, 2009 4:16 am GMT    Post subject: S&P/Case-Shiller Boston Snapshot: Feb 24, 2009 Reply with quote

On Tuesday, February 24th, Standard & Poor's released the S&P/Case-Shiller housing price index data for December 2008. Boston prices fell 7.01% from one year earlier, in nominal terms, as previously reported (Info/Broken?).

The February 2009 futures contracts for the index, which cover prices in the fourth 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 2013 Q3:

  • An additional decline from the most recent month of 4.61%.
  • A total decline from the peak of 19.98%.

The market expectation implied by the closing values of the futures contracts on February 24th is that nominal prices will continue to decline through 2009 Q1 and then remain relatively flat through 2013 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.

Of course, flat nominal prices imply falling real prices when inflation is present. While consumer prices in the US were actually experiencing month over month deflation for a few months recently, the secular trend remains inflationary. In past reports before November 25, 2008, the futures contracts were corrected for inflation using the adjusted 10-year TIPS-derived expected inflation published by The Federal Reserve Bank of Cleveland. Unfortunately, they discontinued publication of this series on October 31, 2008 citing an "extreme rush to liquidity" as making the estimates no longer accurate. Consequently, future inflation from then on has been estimated using the yield on 5 year Treasuries. Suggestions for an improvement on this estimate are welcomed and encouraged.

Here is the same housing data adjusted for inflation, 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 2013 Q3:

  • An additional decline from the most recent month of 12.72%.
  • A total decline from the peak of 32.52%.


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 24th was:

  • Feb '09 153.05
  • May '09 149.00
  • Aug '09 147.80
  • Nov '09 149.40
  • Feb '10 149.40
  • May '10 148.00
  • Nov '10 147.00
  • May '11 147.00
  • Nov '11 150.00
  • Nov '12 146.00
  • Nov '13 146.00

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 2009 by bostonbubble.com 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 bostonbubble.com 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 http://www.bostonbubble.com/forums/viewtopic.php?t=1767 or http://www.bostonbubble.com/ 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 http://www.bostonbubble.com/forums/viewtopic.php?t=1767

The latest version of this report can be found at http://www.bostonbubble.com/latest.php?id=spcsi_bos_snapshot

- admin
Back to top
View user's profile Send private message Send e-mail Visit poster's website
GenXer



Joined: 20 Feb 2009
Posts: 703

PostPosted: Fri Feb 27, 2009 2:22 pm GMT    Post subject: Reply with quote

And now, lets see the 20-sigma bars Wink
Futures are a can of worms. People investing in them do not necessarily understand the risk, so as far having the incentive to bet correctly doesn't translate in being correct, quite a lot of the times. But even if the bet is correct, I think they are underestimating the downside risk, thinking that it is already priced in. Most of them do not know that not all swans are white.

I'm surprised (or maybe, we shouldn't be surprised) that people are a lot more optimistic even with the looming resets of ARMs and other types of mortgages that are quite widespread in MA. Maybe we can have a thread where we can discuss some of that data. It would be very interesting to correlate the loan origination data with foreclosures. Call me a pessimist, but I see a lot more losses than the index would suggest. Somehow, with the government interfering as much as it is, if they actually get to implementing some of what they are currently planning (cramdowns and tax increases on the productive), this may last a lot longer than the last recession.
Back to top
View user's profile Send private message
JCK



Joined: 15 Feb 2007
Posts: 559

PostPosted: Fri Feb 27, 2009 2:39 pm GMT    Post subject: Reply with quote

Curves are pretty flat. I'd say surprisingly so.
Back to top
View user's profile Send private message
admin
Site Admin


Joined: 14 Jul 2005
Posts: 1818
Location: Greater Boston

PostPosted: Fri Feb 27, 2009 2:41 pm GMT    Post subject: Reply with quote

GenXer wrote:
Call me a pessimist, but I see a lot more losses than the index would suggest. Somehow, with the government interfering as much as it is, if they actually get to implementing some of what they are currently planning (cramdowns and tax increases on the productive), this may last a lot longer than the last recession.


Do you plan to sell any futures contracts to back that up? I've especially noticed how little the shape of the curve has actually changed, particularly on the distant futures, even as seemingly major news events emerged (e.g., the credit crunch, unemployment, new administration, etc.).

- admin
Back to top
View user's profile Send private message Send e-mail Visit poster's website
GenXer



Joined: 20 Feb 2009
Posts: 703

PostPosted: Fri Feb 27, 2009 2:58 pm GMT    Post subject: Reply with quote

admin: Exactly my point! I will not bet on something where I have no clue as to what the risks are! I've seen analysis which shows that current models used to estimate risk underestimate risk by orders of magnitude. The best example of this is the risk associated with pricing options. Most of those who play the game don't really know all of the rules, so that's why I take the futures predictive powers with a grain of salt. Lets not forget, a lot of 'smart' institutional investors imploded because they underestimated the downside risk. Let's see what happens in the next couple of years. It should prove to be very interesting...and probably very unpredictable.
Back to top
View user's profile Send private message
balor123



Joined: 08 Mar 2008
Posts: 1204

PostPosted: Fri Feb 27, 2009 4:09 pm GMT    Post subject: Reply with quote

GenXer wrote:
admin: Exactly my point! I will not bet on something where I have no clue as to what the risks are! I've seen analysis which shows that current models used to estimate risk underestimate risk by orders of magnitude. The best example of this is the risk associated with pricing options. Most of those who play the game don't really know all of the rules, so that's why I take the futures predictive powers with a grain of salt. Lets not forget, a lot of 'smart' institutional investors imploded because they underestimated the downside risk. Let's see what happens in the next couple of years. It should prove to be very interesting...and probably very unpredictable.


Underestimate? No - market manipulation!
Back to top
View user's profile Send private message Send e-mail
samz



Joined: 19 Feb 2008
Posts: 102
Location: Medford, MA

PostPosted: Fri Feb 27, 2009 4:14 pm GMT    Post subject: Reply with quote

It does look like the futures have been fairly consistent, and accurate. They also fit with my personal prediction (on the "Make your predictions" thread last year): slow death by inflation.
Back to top
View user's profile Send private message
GenXer



Joined: 20 Feb 2009
Posts: 703

PostPosted: Fri Feb 27, 2009 4:47 pm GMT    Post subject: Reply with quote

samz: my prediction was that something unpredictable will happen Wink
balor123: If this is market manipulation, it is pretty ruinous for some of the manipulators Wink
Back to top
View user's profile Send private message
samz



Joined: 19 Feb 2008
Posts: 102
Location: Medford, MA

PostPosted: Fri Feb 27, 2009 5:21 pm GMT    Post subject: Reply with quote

GenXer wrote:
samz: my prediction was that something unpredictable will happen Wink
balor123: If this is market manipulation, it is pretty ruinous for some of the manipulators Wink


GenXer, you are a troublemaker. (I suspect I'm not the first to observe this. Wink )
Back to top
View user's profile Send private message
balor123



Joined: 08 Mar 2008
Posts: 1204

PostPosted: Sat Feb 28, 2009 12:10 am GMT    Post subject: Reply with quote

GenXer wrote:

balor123: If this is market manipulation, it is pretty ruinous for some of the manipulators Wink


I'm picking at those hedge funds who feel entitled to making loads of money. They place a very large bet on a deal, like Volkswagon or Target, and when their bet turns sour they scream market manipulation. They couldn't have just been wrong. If they lost money, then someone else must have cheated.
Back to top
View user's profile Send private message Send e-mail
GenXer



Joined: 20 Feb 2009
Posts: 703

PostPosted: Mon Mar 02, 2009 5:10 pm GMT    Post subject: Reply with quote

samz: lets just say that people take themselves too seriously sometimes. Also, most 'analysts' tend to predict in packs, so in fact it has been shown by a study (I'll read it myself first, post the references later) that their 'predictions' tend to be closer to each other than to the real events. So...you get the point.

balor123: I think the hedge funds got what was coming to them. Now, Buffet on the other hand...with is losses from TRADING DERIVATIVES and his UNDERESTIMATION of the risk of trading options using Black-Scholes formula...does this sound familiar? By the way, his own words are that he underestimated the risk...and guess what, he is using the failed Black-Scholes formula which has been proven to underestimate risk by orders of magnitude...why do I not feel sorry for him?
Back to top
View user's profile Send private message
john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Mon Mar 02, 2009 5:25 pm GMT    Post subject: Reply with quote

What you guys are talking about is the behavior of a frightened herd.

If an investor cuts against the grain he/she can be either ahead of the curve or dead wrong. Even if they are right by the numbers, the wave of investment money will follow the safety of the school of fish, where they choose to go. It's the same deal, people will follow where Warren Buffet puts his money (perceived smart money) and they will all stock the ponds of Newton etc.
Back to top
View user's profile Send private message
WSJevons
Guest





PostPosted: Wed Apr 01, 2009 9:27 pm GMT    Post subject: Umpossible Reply with quote

You can't sell Boston MSA Futures because there is no market. I tried. The bid-ask - when there was a two sided quote - was wide enough to drive a double-wide through.
Back to top
admin
Site Admin


Joined: 14 Jul 2005
Posts: 1818
Location: Greater Boston

PostPosted: Thu Apr 02, 2009 12:01 pm GMT    Post subject: Re: Umpossible Reply with quote

WSJevons wrote:
You can't sell Boston MSA Futures because there is no market. I tried. The bid-ask - when there was a two sided quote - was wide enough to drive a double-wide through.


Which settlement date did you try to sell for? I've noticed some activity in the near term contracts this week, but the long term ones haven't budged in ages (that I've seen).

- 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    bostonbubble.com 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, bostonbubble.com.
Privacy policy in effect.
Powered by phpBB © 2001, 2005 phpBB Group