Traders Bet That Home Prices Will Fall 10%

by Steve Crossland, REALTOR in Austin TX on October 4, 2007 · 4 comments

This is interesting. Traders can now bet on future housing index prices. I’m glad Austin isn’t on this list below of the 10 metro areas expected to see falling prices. And I’m not sure how much traders can be trusted to accurately predict the real estate market, but I found the article interesting nonetheless.

Traders are betting that home prices in 10 major cities will drop by 10 percent between mid-2007 and November 2011, according to an analysis of housing futures traded on the Chicago Mercantile Exchange.

The contracts have been trading since May 2006, but last month were modified so that traders could bet on prices as long as 60 months into the future. The trading, which has been fairly light so far, is based on expected movements in the S&P/Case-Shiller house price indexes.

Here are the expected four-year changes in average home prices for selected metro areas, based on the futures contracts:

All 10 metro areas: -10.2 percent
Chicago: -6.6
New York: -12.1
Washington, D.C.: -13.3
Boston: -13.8
Denver: -14.4
Los Angeles: -15.0
Las Vegas: -18.1
San Diego: -18.6
San Francisco: -25.9
Miami: -27.9
Source: The Wall Street Journal, James R. Hagerty (10/04/2007)

{ 4 comments… read them below or add one }

1 scott October 5, 2007 at 12:12 am

This is pretty frightening, if this portends what will happen during the next 5 years. I would have thought demographic
drivers such as minority growth, immigration, and such would have made up for the slowdown in less than 5 years,
especially in heavily hispanic California and Florida. Notice how Dallas and Houston is not on this list. I think Austin
would not have had enough population to qualify, but obviously would not have made it on any basis, as hot as it is.
This chart says several things….one, 7 out of 10 are on the coasts. This infers that the slowdown is isolated to the coasts for the most part, and is hardly a all-encompassing thing. Second, there is not one city from the south on the list.
No San Antonio, Dallas, Houston, Atlanta, Nashville, Memphis, Little Rock, Charlotte, Raleigh-Durham, or even New
Orleans. This says that the south not only escaped the overinflated values on the coast, but has the strongest and fastest
growing economy in the nation. Workers can’t afford to live in California, and companies can’t afford the taxes, so all
internal movement of companies is going south, literally. When Japanese auto companies look to build new plants,
its always south, ususally deep south. Tennessee is resurging. The Carolinas are smoking. Atlanta is very much holding
its’ own. Texas, as we know, has the best and fastest growing job market in the south as well. In a nutshell, the south
is the winner here, and, if this prognostication from the Merc is true, will be for at least the next 5 years.
And yes, Austin will be very much in the catbird’s seat with the rest of the south in all this as well………

2 Shannon Lefevre October 8, 2007 at 9:08 pm

Great this is a perfect way to get blamed for the stock markets problems too!

3 Observer October 9, 2007 at 7:55 am

I believe they do not count the inflation (which is what – 3% per year?). So the real value drop is even higher.

4 Real Trader December 4, 2007 at 1:31 am

This is a sure sign real estate will bottom soon. Whenever the vast majority see it one way, the markets always head in the other direction. If everyone was always on the right side of a trade we’d all be rich. If the bulls far outweigh the bears in anything it’s time to jump ship. When the bears outweigh the bulls big time, like now in the housing market, it’s time to buy.

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