An Observation on Quicken Loans review of Homeowner Expectations vs. CME Forward Prices

Quicken Loans publishes an interesting monthly survey where they track what homeowners think of the value of their property versus the values that appraisers put on the same property.   Quicken highlights the ratio (HPPI) between these two measures over time, as well as how the ratio differs across regional areas.  (A number over 0 indicates that appraiser value houses more so than homeowners and a negative number reflects the opposite view, i.e. where homeowners are more bullish than appraisers.   In a related column where he focused on the results for Chicago, Gary Lucido raised the issue of whether appraisals might lag trends in some markets.

I tried to address the issue of possible bias in (or intelligence in) appraisals by comparing the Quicken HPPI index against one-year forward prices for CME Case Shiller home price index futures.  Now the futures have all of the problems that I’ve addressed before:  possible different geographic coverage, indices that are calculated in a different manner, and the thinness of market participation that might make one-year forward prices “jumpy”.  In addition, there are only ten CME regional futures contracts, while the Quicken summary data shows numbers for 27 cities.  That all said, within the ten CME regions, there does seem to be a linkage between HPPI and the strength of one-year forward prices.

The above graph displays the difference between the mid-market value of the Feb ’18 Case Shiller contract and the spot level (so a comparison of numbers 12 months apart) in percentage terms on the X-axis, versus the HPPI index on the Y-axis.  As a generalization, it appears that in regions where one-year forwards contracts are quoted at the highest level versus the spot index (so regions with expectations of stronger home price increases?), HPPI values tend to be higher.  Using the DEN and CHI contracts, and echoing Mr. Lucido, the appraisers seem to be buying into the strength of the DEN market at the highest level (among the ten contracts), while in Chicago, the appraisers are less bullish that homeowners.

At the moment, the appraisers’ views seem more correlated with CME forward values than homeowners are.

I would think (and hope to explore) whether this current correlation can be tested versus historical results (i.e. comparing past HPPI values against past one-forward CME values and eventual one-year gains) to see whether the appraisal community’s sense of current value is better correlated with future price gains, than that of current homeowners.  Any care to join me?

I’m open to discussing any research material (such as this Quicken report) that might help shed light on future home prices, or that might prompt discussion on the “wisdom” of CME prices.  Feel free to contact me ( if you’d like to contribute to this effort.