A report on housing futures released today by TFS Derivatives Corp. suggests that investors are expecting home prices to fall through the end of 2010. The report, based on trading in CME housing futures and options, shows that investors are predicting a nationwide drop in housing prices of 9 percent in 2008 and 15.9 percent by November 2010. Some scary graphs for you -- housing price curves based on the CME futures: tfs_housing_jan82008-east.gif
Click on each graph for a larger view.
tfs_housing_jan82008-west.gif Some markets are expected to drop more than others, obviously, with futures settlements on San Francisco suggesting a 21.1 percent decline in housing prices by 2010. Los Angeles is expected to see a drop of 13.7 percent in 2008 alone. The CME futures trade against the S&P/Case-Shiller housing price indices in 10 key markets, as well as the 10-city composite index. The expectations of investors in CME housing futures are slightly more optimistic than those of the Radar Logic Residential Price Index (RPX), which suggests a 10.75 percent housing price drop spanning 25 major metropolitan areas over the course of the next year. The RPX powers its own housing derivatives market, via daily per-square-foot spot housing price estimates for 25 major U.S. cities based on a 9-week lag. The bottom line here is that while the derivatives market for residential real estate is still in its infancy, real money is changing hands on the market expectations described above.