LAV home prices – “Most over-valued” according to Fitch

In June, the Las Vegas Review-Journal picked up on a report from Fitch that had cited Las Vegas as the most over-valued city in the US. (See LVRJ article here.)

If so, the CME markets have not reacted, as quotes on futures contracts – that expire as far out as Nov 2022 – remain consistent with LAV having the strongest cumulative home price appreciation across the ten regional contracts.  To be sure, prices (see table/charts below) are suggestive of annual home price appreciation (HPA) slowing dramatically from the +10% gains of the last few years, but calendar spreads (i.e. the prices traders are willing to pay to buy one contract while simultaneously selling another) are consistent with home price indices continuing to rise over the next 3-5 years.

That said, the factors Fitch cite are real, and memories of the 2007-08 crash are still fresh in the minds of builders, homeowners and real estate agents.  Those with concerns about a bubble in LAV prices might want to learn more about the CME futures and options, as they may be the purest way to financially express a view on LAV index expectations.

There has been little volume in LAV contracts, but the quotes are (were) actionable.  I typically show 1×1 markets (one lot bid with one lot offered) but am eager to facilitate retail-sized inquires either by bidding/offering more contracts than shown, or at better prices. (Note- The Notional amount of one lot = $250* price, so a price of 200 would be $50,000 notional value.)  The CME typically requires <10% margin on any futures contract, so leverage is possible (but your broker will determine final margin requirements).

Feel free to contact me (johnhdolan@homepricefutures.com) if you have any questions about this blog, or any aspect of hedging home price index exposures.  I can’t/don’t give financial advice but I’m happy to help readers understand how these CME products work.

 

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