An open letter to NAR Expo attendees

The most successful REALTORS ®  have always focused on addressing client needs, over the sale of any one house. I write this post to suggest how REALTORS ®  might help their clients address the daunting, binary life-cycle challenges as they transition from 100% Renter to 100% Buyer to 100% Seller.  

Millennials saving for their first home face an all-or-none decision of when to buy, in probably the biggest financial decision of their lives. As they save for the down-payment, they've watched home prices run away from them, without any participation in that upside. On the other hand, current homeowners, wary of the length of the current run-up in prices, may want to hedge, but without selling and moving. They may like their current schools, church, commute, neighbors and just want to reduce exposure against a possible downturn in prices. Finally, future sellers (e.g. parents looking to downsize when they transition to empty-nesters, or retirees considering a move to warmer areas) fear that they might mistime their sale.

As I previously detailed in my May 17th blog, I'd argue that all might benefit in taking bite-sized exposures to home price indices in their local areas (either long, for prospective buyers, or short for hedgers, future sellers).

I agree that real estate is all about "location, location, location" but would offer a different interpretation. In my view location #1 is the regional area where factors driving the local economy (e.g. population in-flows, job growth, the success of the main businesses in the region). The second location might involve school districts/ neighborhoods, while location #3 might be the features of an individual house.

I'd argue that the price of an individual house is impacted by all three "locations". A booming local economy will raise most prices across the board, while population outflows will put pressure on home prices. A poor house in a booming economy might rise in value as someone renovates and flips it, while the best house in a declining area may sit on the market for months. While REALTORS ® can add tremendous value via local knowledge on locations #2 and #3, I'd suggest they can tap evolving markets on home price indices to help their clients appreciate the risks associated with location #1 (and to see where markets clear forward home price risk).

There are (at least) two formats to consider if clients want something to try and hedge the risk of "location #1".

1) There are Case Shiller home price index contracts available for ten regions (Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco and Washington DC). Prices are publicly available (as they are traded on the Chicago Mercantile Exchange "CME"), and contracts go out more than four years. In effect, if a client is looking to buy/sell in four years, they might consider buying/selling contracts. (BTW -each contract has a notional value of ~$50,000 so fractional hedging can be done). Investors have long followed the concept of dollar-cost averaging in stocks. Why not apply the same concept to home price exposure?!?

The tables and graphs below show prices on the HCI (Case Shiller 10-city index) contracts, a graph (upper right) of historical CS index (in black) versus contract prices, quotes options (lower left) and year-on-year price differences for both indices and contracts.

2) In response to inquiries from those in regions not covered by Case Shiller contracts, I've recently launched a platform (HPHF) to facilitate home price index agreements on the top 50 metropolitan areas. (See for details.) These are structured similarly to Case Shiller futures except that the notional amount can be much smaller (e.g. $15,000/agreement), the term is currently limited to Jan 2021, and trades are done OTC. The good news is that a hedging platform is available for areas such as those noted in an NAR piece on "Top 10 areas for Flipping."

Please understand that none of the above is considered investment advice, and I'm not advocating that clients should speculate on where regional home prices are headed. There are risks to trading futures, or OTC agreements, and users should consult financial experts who can evaluate how these products might address certain risks. Also, I'm not suggesting that I know where home prices are headed in particular regions. I've merely picked levels where I think the probably of someone buying or selling is about the same, and will adjust levels over time, either as fundamentals change, or interest becomes skewed. Opinions on forward values may be useful, but nothing so heightens attention as backing up prices with personal risk capital.

Finally, I have no axe to buy or sell any index agreement, but instead think that creation of a platform where potential buyers and sellers might meet, would be preferable to their current situations. To that end, I'm happy to buy/sell any index agreement (in small amounts) to get things started.

That said, I would suggest that your clients might benefit in knowing that there are options beyond the 100% Rent vs 100% Buy vs 100% Sale decisions that they currently face. A practice that reduces your clients' risks, and thereby potentially reducing your clients' stress, may be something worth considering.

Please feel free to contact me if you have questions or if you'd like a quote on your region. Feel free to follow my work on Twitter (@HomePriceFuture), LinkedIn, or at

Thanks, John