Wednesday, November 28, 2007

Expectations Market for Home Price Declines

The CME futures markets on the Case-Shiller home price indexes predict the following home price declines for these markets and for the national, composite average:

Table 1. Contracts by year-month, at last traded price.

Las Vegas-3%-5%-7%-8%-10%-12%-13%
Los Angeles-2%-4%-6%-7%-8%-9%-11%
New York-3%-5%-7%-8%-9%-11%-12%
San Diego-2%-4%-5%-6%-8%-10%-12%
San Francisco-2%-4%-6%-8%-10%-13%-15%

These suggest that those who are worried about massive declines (20%+) in the upcoming year, due to foreclosures in their home markets or whatever, can still successfully hedge against that further decline.

Those who just want to hedge against a non-specific, generalized fall have less opportunity in the long-term contracts and would need to look toward rolling near-term contracts over.

These are not heavily traded contracts, presently, although interest may pick up.

This note is for informational purposes (commentary) only. Don't buy or sell anything just based on this or any other note here.

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