Pulsenomics recently posted their Q4 Home Price Expectations Survey. My sense is that this is one of best benchmarks for home price forecasting due to the history, standardization, and number of participants. ^1
I think that Pulsenomics survey may help illustrate my belief that the clearing level for transfer of home price risk, is much lower than expectations of forward prices. (I've touted this view for years, but first fully documented my thoughts in a May 1, 2020 blog.)
Note that in the table below, the mean forecast for home price gains, in the Pulsenomics/Zillow survey by year-end 2025 (vs. 2019) is 26.05%, while CME Case Shiller futures are priced for a cumulative 13.23% gain (using the mid-market value of the Feb 2026 contract that settles on the Dec 2025 Case Shiller index). The annual implied gains in the CME contracts for 2021-2015 are a fraction of those from the survey.
Beyond a comparison of means vs. means, there were 36 Pulsenomics participants who predicted that the ZHVI index would rise by more than 30% through 2025 and 11 participants who said greater than 35%. Further there were 16 who said that the index would rise by less than 5%.
I'd encourage any users with such outlier views to consider using (or at a minimum letting their clients know of) the CME Case Shiller home price futures.
While it's important to recall that the Zillow and Case Shiller indices reference different areas (Zillow has much more of a national perspective)^2, and that the Pulsenomics survey was conducted more than a month ago, the historical results of the ZVHI and CS 10-city index have not been that far apart. Further, note above the the "forecasts" for 2020 have the Case Shiller index slightly out-performing ZHVI.
As the graphs below illustrate, the Zillow ZHVI and the Case Shiller 10-city index have nearly matched moves over the last ten years. Case Shiller has been more volatile but the two series have a correlation of >80%. The Case Shiller 10-city has had a slightly better cumulative performance (+54.4%/49.6%) since Dec 2009, but recall that Case Shiller probably fell more during the Financial Crises.
Net, it's can be argued that predications of the ZHVI performance over 2020-2025 (inclusive) should not be double that of the Case Shiller 10-city index.
In my opinion, one way to reconcile the two forecasts is that the CME quotes are too low. That is, the CME quotes (which are mostly mine) reflect that buying protection comes at a price -i.e. that with an imbalance between natural longs and natural shorts, that the clearing price for risk transfer should be at a discount to expectations. This will be necessary to provide speculators with an attractive risk/reward. That then begs the question (that I don't have an answer to) of how much should the discount be. Should it be linear, or should discount widen as time-to-expiration extends? If so, the front CME contracts (i.e. Feb '22 and Feb '23) might be the most attractive of the series.
Anyway, treat as food for thought for your year-end reading/ 2021 planning. My sense is that institutional longs (i.e. those looking for core exposure to home prices) might take a hard look at opportunities to add exposure when priced at such discounts.)
Please feel free to contact me about this blog, trading ideas, or if you have any questions related to hedging using home price index derivatives.
Thanks, John
^1 FYI - I am one of the participants
^2 While there are broader Case Shiller indices (e.g. the CS National Index), I'm using the Case Shiller 10-city index here as there are tradeable contracts. Given the transition to suburbia/work-from-home preferences, I might expect the CS National Index to outperform the CS-10 though 2025, but not by enough to undermine my theory.