Texas home prices have tended to underperform national prices moves, even as the population expands^1. As the table below shows, four of the five largest cities in Texas saw year-on-year home price gains below that of the Freddie Mac National average.^2 Only Austin out-performed.
Given the recent storms, the resulting power outages, and the questions raised about Texas infrastructure - to include the electricity grid -might Texas home prices have even further underperformance in 2021? I pose the question as, since absolute gains over the last few years have been strong, a) will any of current owners want to lock in gains? b) might anyone who plans on relocating away from Texas want to reduce their home price exposure before such a move, and c) of the people who are looking to move to Texas over the next few years, might they want to add home price exposure now, should there be any dip in the level home price risk clears?
As before, I'd note that by using home price index derivatives, one can avoid the 100% Buy vs Rent vs Sell decisions by taking bite-sized pieces of home price index risk exposure. http://bit.ly/HPFbitesizes
The right side of the above table has HPHF levels for Relative Performance agreements (for settlement based on the Freddie Mac index numbers to be released in the first week of February 2022). These are similar to CME intercity spreads, except that they can be done for matching nominal amounts, in increments of $25,000. (In addition HPHF agreements are capped as to how far they could move. See https://www.homepricefutures.com/hphf for an introduction to HPHF and my July 27th blog on hedging Portland, to see how RP agreements might be used.)
One can also just take outright views with an HPHF forward agreement.
The table below converts the RP agreements above into outright forward levels, based on a 4%/5% quote on the National Freddie Mac index.^3 (Note that these are levels where I'd take the other side in a risk-transfer trade, not necessarily predictions of, or expectations of, forward prices). That is, outright levels will change, not only as RP levels change but as clearing levels on the Freddie National index agreements change.
Note also, that a message here is that levels where home price risk transfers, are higher YOY, but that it's gotten even lower than where National risk transfers.
These of course, are just my views at the moment. I'm willing to take either side of a nominal trade to get things started, but levels can change for a variety of reasons, to include many more buyers than sellers (or the reverse).
Please feel free to contact me if you have any questions about this blog, if you have trading ideas on Texas cities (or anywhere else0, or if you'd like to learn more about the use of home price index derivatives in hedging strategies.
Thanks,
John
^1 -I will leave for others to suggest why, but the cheaper cost of land in nearly borderless cities probably has something to do with it.
^2 I'm referencing the Freddie Mac NSA indices released in February 2021. See http://www.freddiemac.com/research/indices/house-price-index.page for details.
^3 The bid side of Houston was 0%, which is why it's not showing.