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On Tuesday, November 29th, Standard & Poor's released the S&P/Case-Shiller housing price index data for September 2011. Boston area single family home prices fell 1.20% from one year earlier, in nominal terms, which was a decrease of 4.98% when adjusted for inflation.

The November 2011 futures contracts for the index, which cover prices in the third quarter of 2011, 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), although in practice the snapshots may be less frequent. 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:

A nominal decline of 0.66% from most recent prices by 2012 Q1.
The nominal bottom was hit in March 2009 and was a 20.07% decline from the peak.

Of course, for an accurate picture of how housing values change, inflation must be considered. As of June 30, 2010, The Federal Reserve Bank of Cleveland has introduced a new year by year measure of inflation expectations which is used below to adjust future Boston home price expectations. In past reports before November 25, 2008, the futures contracts were corrected for inflation using the adjusted 10-year TIPS-derived expected inflation also 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 during interim reports was estimated using the yield on 5 year Treasuries.

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 3.26% by 2012 Q1.
A total decline from the peak of 30.20%.
The real bottom was hit in April 2011, although the projected additional decline by 2012 Q1 will come very close to repeating it.

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 and the track record to prove it. 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 31st was:

Nov 30, 2011: 152.00
Feb 29, 2012: 153.60
May 31, 2012: 150.00
Nov 30, 2012: 152.00
Nov 30, 2013: 154.00
Nov 30, 2014: 158.40

While charts were not published for the previous futures settlement on August 30, 2011, settlement data was captured and was:

Aug 31, 2011: 150.00
Nov 30, 2011: 148.20
Feb 29, 2012: 150.40
Nov 30, 2012: 152.00
Nov 30, 2013: 154.00
Nov 30, 2014: 158.40

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:

S&P/Case-Shiller Index 1987 - present: http://www.standardandpoors.com/ ...truncated...
Futures: http://futures.quote.com/quotes/quote.aspx?qmdirect=1&symbol=%2fBOS&name=%2fBOS
Past Inflation: http://www.bls.gov/cpi/
Future Inflation: http://www.clevelandfed.org/research/data/inflation_expectations/index.cfm
Treasury yields: http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml
Future Inflation before October 31, 2008: http://www.clevelandfed.org/research/inflation/TIPS/index.cfm

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

- admin

FreedomCM · Guest

excellent!

I wonder how much closer to 70 the market would have come in this downturn without the interest rate interventions?

It would be even more interesting (for me, at least) if the futures had been set up to track the 25%, median, and 75% segments of the CS index.

MathMan · Guest

A longterm price chart plotted using a linear scale is (1) deceptive and (2) misleading. The vertical axis should be logrithmic, not linear, in order to present the price evolution over time in a meaningful way. Intelligent people who own stocks and chart their prices know this very well ... and the same is true for people plotting home price charts.

admin

admin · Posted: Tue Feb 21, 2012 1:05 am GMT Post subject:

You should also contact Yale Professor Robert Shiller (as in Case-Shiller) and inform him that his US home price chart, which is quite possibly the most well known and highly informative US home price chart ever, is bunk because it uses a linear scale. Tell him that it needs to look more like a stock chart for you to be able to feign intelligence and wealth. Perhaps also write to S&P so that they can replace his housing index with yours.

- admin

Renting in Mass · Posted: Thu Feb 23, 2012 7:25 pm GMT Post subject:

Lindachan · Guest

obviousy the suffold downs option is going to materialize and will change
the entire structure of the realestate market arount the north of
Boston. Is anyone addressing this potential impact? If so I havn't read
anything>

admin · Posted: Sat May 19, 2012 11:13 am GMT Post subject: Re: suffolk downs

I take it you mean the Suffolk Downs Casino? Good question. I don't know that the impact will be noticeable on the S&P/Case-Shiller Boston Index above, because that is for the Boston Metropolitan Statistical Area, which is geographically large, but yes, I would expect some ramifications around the north of Boston Proper. What those ramifications will be exactly, I don't know.

- admin

J1mbo01 · Guest

Any chance we might see an updated chart anytime soon? Love the website and analysis.

admin · Posted: Sun Aug 05, 2012 8:37 pm GMT Post subject: Re: Update

wuslane · Guest

Hi!

I have been using this report for several years to track the market and I would very much like to see the latest data. Any chance you could include at least the raw data?

admin · May 29, 2012

homepricefuturesguy · Joined: 15 Aug 2010 Posts: 22

Homepricefuturesguy back (after a few years).

BOS markets on the CME are where the focus is today (Mon. Apr 8, 2013). BOSX13 (Nov 2013) 161.8/162.4 = best market across ten contracts.

Happy to discuss BOS here, or you can join LinkedIn group "CME Case Shiller home price futures" or follow me at www.homepricefuture.com.

Very open to trading inside (or more contracts) that posted BOS prices.

homepricefuturesguy · Joined: 15 Aug 2010 Posts: 22

Trading in BOS Case Shiller futures has been quiet. (Any action has been in strong West Coast or CHI markets). Here's an update to futures prices as of Sept 3
Contract Mkt Bid Mkt Ask
BOS
BOSX13 169.2 170.4
BOSG14 165.2 169.2
BOSK14 162.0 168.0
BOSQ14 170.2 175.2
BOSX14 176.0 179.0
BOSG15 169.0 178.0
BOSK15 166.8 177.0
BOSX15 181.0 186.6
BOSK16 172.2 185.0
BOSX16 186.6 196.2
BOSX17 189.8 203.6
If someone shows me how to insert a graph I'll show that next time.
Please feel free to reach out for any hedging proposals on BOS index.
John

admin · Posted: Tue Sep 03, 2013 2:01 pm GMT Post subject:

Thanks for the update. You can include an image like this:

[img]http://www.bostonbubble.com/sup/csi_boxr_real_futures_zoom.20111129.gif[/img]

The image has to have a public URL already for that to work. You can use your own blog/server to give it one, or use a free image hosting service like ImageShack if that won't work for whatever reason.

- admin