Zillow published a report earlier this month that included language that " ...the data show it’s likely that home values in 16 of the largest 50 metros truly have peaked: Their home values are down this month and have been flat or falling for the quarter. They are San Jose, San Francisco, Pittsburgh, Los Angeles, Seattle, San Diego, New Orleans, Boston, Miami, St. Louis, Portland, Ore., Tampa, Virginia Beach, Baltimore, Philadelphia and Houston."
I've seen buying interest in some of the cities mentioned, so I thought that I would put forward this blog as markets provide a great platform for well-informed users to disagree.
Here's a table of prices on the Case Shiller CME contracts for Feb '20 expiration (so referencing year-end 2019 #'s) on the five "cities" that have CME contracts, and some OTC quotes using my HPHF platform for nine of the other cities (I left out New Orleans and Virginia Beach), referencing Freddie Mac indices. Note that while I've cited contracts that reference Case Shiller and Freddie Mac indices, Zillow is referring to their own ZHVI which may reference different geographic regions, as well as rely on different approaches to calculating indices (e.g. hedonic vs repeat sales). As such, all comparisons need to be taken with several dose of caution - not only the indices differ, but the forward prices on both CME futures and HPHF are mine.
That said, I'm not aware of any derivatives that access Zillow indices, so if readers want to take a pure play derivative exposure on a home price index, these may be the best platforms.
While the CME and HPHF platforms do show lower mid-market to spot levels for several of the cities mentioned in the Zillow report, three Northeast cities (Boston, Philadelphia and Pittsburgh) stand out as having prices on contracts/agreements referencing spot and year-end indices, that are above today's levels. Further, all five CME contracts have mid-market prices that are above spot levels. (Further, I've shown contracts here that reference year-end 2019 numbers. CME contracts for late 2020 (the Feb 2021 contract hasn't been opened) and HPHF levels for year-end, would be higher in most cities (except Seattle, Portland, San Jose and Balitmore).
Net, I'd like to hear from anyone who believes the Zillow "prices have peaked" forecast, and who might be looking to sell CME contracts or take short exposure in an HPHF agreement.
Beyond that, even if prices have peaked in the other areas, there may be users that wouldn't mind hedging against a the risk of a bigger decline in prices. That is, while Baltimore (and others) are bid at discounts to current spot levels, hedging (even at such a discount) might prove useful if index values fell 5-10%.
While the comments on the Boston contract and the specific 14 cities were my focus here, please feel free to contact me with your interest (long or short) on any city referenced by a Freddie Mac home price index.
Thanks
John