Echoing an earlier blog, I think that the Seattle market is the region most in need of a home price hedging platform. Home prices are high, prices have been volatile and index values have turned lower, some current homeowners have huge gains to protect (e.g. the spot index was 128.99 in Feb 2012 vs. 244.99 today), there have been political winds impacting forecasts (e.g. proposed zoning changes), and possible spillover effects from Vancouver. Inventory is rising (albeit from historic lows) and yet the allure of living in Seattle remains attractive to many. Also, stock market volatility, and implications on possible changes to trade policy, might impact Seattle residents. Net , Seattle home price may be impossible to forecast, but that doesn't mean they can't be hedged. Given the above, I've argued before (see https://www.homepricefutures.com/posts/reduce-the-stress-of-100-rent-vs-100-buy-decision-with-bite-sized-pieces ) that longs might like to lighten up on a portion of their exposure to the Seattle area, while future home buyers (or even renters) might want to add some small exposure to changes in the forward index levels.
Hence I propose that residents consider a relatively shorter term home price hedging agreement. Such agreements will allow users to take long/short exposure to an index for some specified future date (in this case Feb 2020). There will be no need for a sale of the house to collect any funds. The payout is straightforward based solely on the index value at expiration. The hedge is only for a short-time (in this case < 1 year), but longer agreements may evolve, and users may have the ability to roll into new expirations as they are launched. Importantly, users will have the ability to reverse any exposure (at a price set by the market in the future), should their views change.
While I envision having either periodic auctions or bulletin boards where Seattle residents could meet to offset risks, to jump-start the process I'm open to either buying or selling a small amount Case Shiller Seattle index exposure for Feb 2020 expiration at the prices listed below. (Note that these agreements are for $100/point, so one agreement has notional value of about $25,000.)
While I realize that there may be a relatively small universe of Seattle residents who enter into derivative agreements (much less on housing derivatives) the Seattle press and social media suggest that home price uncertainty is a big concern. I have no particular insight to the Seattle real estate market, but I do know from experience as the market maker on CME Case Shiller home price futures, that hedging may reduce risk, and that both current longs and "not-longs" might benefit in having a platform to meet.
Please feel free to send my your thoughts on pricing, your questions on this blog, and proposals for any agreements.
BTW -I'm open to doing such a trade on other larger cities if anyone has a strong view.