Warning: Individuals who have purchased a home within the last two years should take caution before proceeding with this post.
As regular readers of Think B.I.G. know, the Chicago Mercantile Exchange offers futures contracts on the US housing market. These futures track the S&P/Case-Shiller Home Price Indices that provide median home sale price data for 20 cities across the country. CME offers futures contracts for 10 of the 20 cities along with a composite index of the 10 cities that expire over various months from November 2007 through November 2011.
From the current price levels of these futures (July data released today), the housing picture is not pretty going forward. Below we have created charts of the 10 cities that include the actual home price data from S&P/Case-Shiller (blue lines) along with the prices of the futures contracts over at CME (red lines). The percentage number that we provide is the difference between the current median home price and the lowest priced contract for each city. As shown, Miami home prices are expected to fall 28% from current price levels. San Francisco is second worst at -26% and San Diego is third at -19%. Investors are predicting the composite index to fall 14% before coming back slightly by 2011. So while some are hoping home prices have already bottomed, investors actually putting their money to work are betting on much more significant declines.
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With the feds aggressively devaluing USD, the RE nominal prices will go up or at least stabilize.
Posted by: jack | September 26, 2007 at 09:59 PM