Inversion in SFR Home Price Futures (Declining Prices?)

For the first time since at least 2012, a trade has caused home price futures curve to become inverted (i.e. forward prices closing below spot).  The graph below illustrates that the closing price of 268.6 on the SFRX20 (Nov 2020 expiration) is lower than the spot index value of 269.21.  The SFRX20 close has fallen 16.4 points (or ~5.75%) from the high of 285 last seen on Oct 8.^1

While traders can bid/offer/trade for  variety of reasons, one component might include expectations of future index levels (as the contracts settle on index values at expiration).  So, while many year-end forecasts are calling for gains in SFR over 2019-20 (and to qualify, possibly on other, less volatile home price indices) this market is priced consistent with a more bearish outlook.   As I’ve argued before^2, price changes on futures contracts may include a component of forward expectations, making them much more useful than spot indices for predicting the future.

Some notes:

  • Most of the activity in the CME Case Shiller futures has taken place in the SFR contracts, so prices may be a little ahead of other regions.
  • This market is thinly traded.
  • The SFR region has long been viewed as over-priced by some analysts (e.g. when using income-based metrics), and support for home prices may be more influenced by changes in wealth (e.g. appreciated shares in Silicon Valley companies).  (See next week’s blog for more on this.)
  • Some regions (e.g. CHI) have been inverted before,  but on quotes, not a trade
  • The last time forward contract prices were most inverted was during the 2007-08 housing crises.
  • Finally, some of the strongest housing markets (e.g. Seattle, Toronto, Vancouver, Sidney) have also seen prices drop, so an outright reduction in SFR prices would not be an outlier.

Please feel free to contact me ( if you have any questions on this blog, or any aspect of hedging home price indices.

Thanks,  John

^1-The longer dated SFRX22 (Nov 2o22 ) contract has fallen ~6.75%


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