A number of Wall Street and housing research firms have, given the New Year, been making forecasts as to where home prices are headed for 2014. Whether
or not you agree with them, none of them gives you a direct financial way to express your views.
The Case Shiller (home price index) futures contracts, that are (infrequently) traded on the CME, provides the “purest play” that I know of for expressing a view on 2014 home prices.
The attached table shows both the outright and calendar spread markets for the Feb 2014 and 2015 HCI (CUS 10-city index) contracts. The Feb contracts are important to year-end forecasts as each contract settles on the value of the Case Shiller index two months earlier, that is, the year-end values. While one could trade the Feb 2015 G15 contract outright, a potentially more accurate way to lock in a year-on-year forecast might be to buy or sell the G14_G15 calendar spread.
A bid of -12.0 (so Feb ’14 price minus Feb ’15) is a percent difference of 6.7%, while the offer of -8.0 is consistent with a 4.5% increase. These numbers sound in line with some forecasters but differences will exist between different home price indices.
I posted the -12.0/-8.0 market to start (and frame) a discussion of 2014 price appreciation. Please feel free to weigh in here -with a better bid or offer, or the LinkedIn group “CME Case Shiller Futures”.
This same approach can be taken with each of the ten regional contracts. Please feel free to contact me johnhdolan@homepricefutures.com if you’d like to start a discussion/market on one of those contracts.