There have been several discussions recently on the performance of home prices through 2007 and into early 2008. The Big Picture points out that the most recent Case Shilling Home Price data out shows that 2007 markets the first year since maybe 1992 of declining home prices. CLSA’s Greed & Fear also mentioned the direction of the market referencing the November 2008 futures for LA indicating an expected 18% decline between November 2007 until then.Looking at these, I figured it would be smart to have a deeper look into what the Futures market are predicting. So, I put the most recent CME Case Shiller Futures data into Excel and produced the above chart. As a quick explanation, the futures are bets on where the index will be at that point in time. So, with the Los Angeles index was at 240 in November of 2007, the November 2008 futures indicating 196.4 means that traders are predicting the spot level of the index to be at 196.4 in November of 2008.The contract information for this index is on the CME web site. The market data for the futures are on that site as well. If you look at the market data, you will notice that these markets are not extremely liquid. Thus, the curves for the future is not so smooth.
As you see by this study, the futures are indicating that we continue to go lower from here. It does seem that they are indicating a bounce in 2009 and 2011, but neither will be enough to push the market higher from here out through 2012. I continue to hear of home speculators out there who seem to not understand that the market will not be rallying back to where we were previously. People and Realtors love to point out “you can buy this house for only X, when it used to sell for Y”. Well, that may be great, and seem cheap, but the fact remains that I still believe it will be worth much less than X a year or two from now.
The red dotted line indicates where we are now. I have only included relevant GreenTaxi markets, but if you search through the site you can find the rest of the cities data.
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