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S&P/Case-Shiller Boston Snapshot: Feb 23, 2010

 
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admin
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PostPosted: Fri Feb 26, 2010 7:41 pm GMT    Post subject: S&P/Case-Shiller Boston Snapshot: Feb 23, 2010 Reply with quote

On Tuesday, February 23rd, Standard & Poor's released the S&P/Case-Shiller housing price index data for December 2009. Boston area single family home prices roes 0.47% from one year earlier, in nominal terms, which was a decline of 2.30% when adjusted for inflation.

The February 2010 futures contracts for the index, which cover prices in the fourth quarter of 2009, 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 2014 Q3:

  • An additional decline from the most recent month of 6.48% by 2010 Q3.
  • A total decline from the peak of 21.18%.
  • Essentially flat nominal prices from the bottom through 2014 Q3, which is as far as the futures go.

The market expectation implied by the closing values of the futures contracts on February 23rd is that nominal prices have temporarily bounced off of the bottom, will return there over the coming months, and will then remain flat for as far into the future as contracts are available. Prices had previously arrived at the level predicted as the bottom by several of the past futures snapshots, but they did so earlier than predicted. Their bounce above previously predicted levels is quite possibly the result of the ostensibly temporary home buyer tax credit.

Of course, flat nominal prices imply falling real prices when inflation is present, and it is. 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. There have been suggestions for improving this method of estimation. The suggestions are appreciated and will hopefully be reviewed and assimilated as time permits in the future. Time constraints led to the use of the yield on 5 year Treasuries again this month.

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 2014 Q3:

  • An additional decline from the most recent month of 15.19%
  • A total decline from the peak of 35.93%.


Note that the volume on the futures 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 23rd was:

  • Feb '10 153.77
  • May '10 154.00
  • Aug '10 148.00
  • Nov '10 143.80
  • Feb '11 143.80
  • May '11 143.80
  • Aug '11 143.80
  • Nov '11 148.40
  • May '12 146.00
  • Nov '12 144.40
  • Nov '13 146.00
  • Nov '14 146.00

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:

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

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balor123



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PostPosted: Fri Feb 26, 2010 9:28 pm GMT    Post subject: Reply with quote

It'd be great if we could have an animation showing how futures are changing over time. I could see two as useful: one which draws the prices over time showing the futures at that time and another which shows the change in futures over time for a given time.

One way of doing this would be an animated GIF but that would be somewhat laborious to create. Anyone think of a better way?
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admin
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PostPosted: Fri Feb 26, 2010 10:03 pm GMT    Post subject: Reply with quote

I actually did that for the August 2007 snapshot:



This might be too labor intensive to do well now given the large number of snapshots that exist now and given the addition of the real charts, which have changing scales. But how about just slapping all the charts together with Gifsicle? Here's what happens:



Also, the first thing that came to my mind for enhancing the visualization was to use the Blytic player, though I'm not sure that you can upload your own data sets yet, and it's also Silverlight-only at the moment.

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balor123



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PostPosted: Fri Feb 26, 2010 10:53 pm GMT    Post subject: Reply with quote

What's wrong with Silverlight? There seems to be a Mono based linux plugin for it. The animated GIF if ok but the rate is too quick and the images aren't consistent. Better would be some sort of interactive graph that allowed you to control the speed of update, pause, etc.

Somethine else that would be nice would be to characterize how accurate the futures have been. Maybe we should take the median error for all of these futures at different time lengths. That would tell us how accurate the futures have been going forward and we could even show upper and lower bounds on the futures going forward based on previous accuracy.
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PostPosted: Fri Feb 26, 2010 11:18 pm GMT    Post subject: Reply with quote

balor123 wrote:
What's wrong with Silverlight? There seems to be a Mono based linux plugin for it.


A lot of people (most?) don't have it installed. I'd prefer to keep the barrier to entry for viewing the data as low possible since, as a user, it's hard to know in advance if the effort of installing a plugin will be worth it to see the content because you don't get to see the content until the end. Microsoft also doesn't have the best record of retaining compatibility once they have a captive market - I could totally see them abandoning the Mac after gaining enough market share, like they did with IE.

balor123 wrote:

The animated GIF if ok but the rate is too quick and the images aren't consistent. Better would be some sort of interactive graph that allowed you to control the speed of update, pause, etc.

A JavaScript player could achieve much of that pretty easily (not the consistency part, though).

balor123 wrote:
Somethine else that would be nice would be to characterize how accurate the futures have been. Maybe we should take the median error for all of these futures at different time lengths. That would tell us how accurate the futures have been going forward and we could even show upper and lower bounds on the futures going forward based on previous accuracy.


Yes, that's a good idea too.

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mpr



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PostPosted: Sat Feb 27, 2010 1:54 am GMT    Post subject: Reply with quote

Admin, could you put up the C&S by price tier as you did before ?

We had quite an interesting debate about that !
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PostPosted: Sat Feb 27, 2010 3:07 am GMT    Post subject: Reply with quote

mpr wrote:
Admin, could you put up the C&S by price tier as you did before ?

We had quite an interesting debate about that !


Here you go:



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Renting in Mass



Joined: 26 Jun 2008
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PostPosted: Sat Feb 27, 2010 3:26 am GMT    Post subject: Reply with quote

Does that second chart jive with the idea that the January 2010 YOY prices jumped because low end sales no longer dominate? It looks like in January 2009 low end and high end were about the same. So that argument makes sense for MOM, but not YOY, right?
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PostPosted: Sat Feb 27, 2010 4:15 am GMT    Post subject: Reply with quote

Renting in Mass wrote:
Does that second chart jive with the idea that the January 2010 YOY prices jumped because low end sales no longer dominate? It looks like in January 2009 low end and high end were about the same. So that argument makes sense for MOM, but not YOY, right?


That's a good question - I'm not sure. I think you are right that it is evident from the MOM change that there was an uptick in the high tier in December, which is a time of the year when prices usually trend down, suggesting something did just change with the high tier (the expansion of the tax credit is my hypothesis). This isn't showing up in the YOY numbers yet, but probably will soon.

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GilbertMasone



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PostPosted: Fri Nov 05, 2010 9:28 am GMT    Post subject: Reply with quote

How accurate do you think the future charts are?
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PostPosted: Fri Nov 05, 2010 2:37 pm GMT    Post subject: Reply with quote

GilbertMasone wrote:
How accurate do you think the future charts are?


They've been rather good thus far, but I would chalk that up to luck given the very low trading volume. I am not going to rely on them as accurate with the current volume, they are just the least bad option for projection.

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