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S&P/Case-Shiller Boston Snapshot Q3 2007

 
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admin
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Joined: 14 Jul 2005
Posts: 1807
Location: Greater Boston

PostPosted: Wed Nov 28, 2007 3:28 pm GMT    Post subject: S&P/Case-Shiller Boston Snapshot Q3 2007 Reply with quote

Yesterday, Standard & Poor's released the S&P/Case-Shiller housing price index data for September 2007. Boston prices fell 3.2% from one year earlier, in nominal terms, as previously reported (Info/Broken?).

The November 2007 futures contracts for the index, which covers prices in the third quarter, were also settled yesterday. 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 is a graph 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 long term outlook hasn't changed very much from last month. The market is currently pricing in an additional, nominal decline of 13.31% by 2010, and a 18.88% nominal decline from the peak.

The November 2007 futures contract rose 1.13 points, or 0.67%, yesterday to settle at the reported value of the index for September 2007, which was 170.73. The closing values for all contracts on November 27, 2007 were as follows:

  • Nov '07: 170.73
  • Feb '08: 166.00
  • May '08: 162.40
  • Aug '08: 160.00
  • Nov '08: 160.00
  • Feb '09: 157.60
  • May '09: 155.40
  • Nov '09: 151.00
  • May '10: 148.60
  • Nov '10: 148.00
  • Nov '11: 150.00

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.

Previous snapshots are available for:

The data used for the above report was obtained from the following sources:

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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Wed Nov 28, 2007 3:42 pm GMT    Post subject: Reply with quote

Alright, I'm playing with this really cool new tool. Obviously, you're looking to see if we have a fray or an alignment at the current tail end. If you see a change like between 9/17 and 10/30 you have to find out what the impetus for the change was.

http://www.bankrate.com/brm/graphs/graph_trend.asp?product=1&prodtype=M

I see the interest rates dropping significantly at the beginning of October which might have changed the tail end outlook.

It is interesting to note that despite a continued drop in rates between 10/30 and 11/27 you don't see as much of an uplift. I think this is because in early November, rates went up and then down towards mid November.
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