Good news for Mariners fans, bad news for Tigers faithful. This week, Standard & Poor’s released its S&P/Case-Shiller U.S. National Home Price Index for April 2007 and the news was just about as bad for homeowners in Detroit as it was good for the folks in Seattle. While the Seattle market zoomed up 9.6 percent between April 2006 and April 2007, the Detroit market plunged 9.3 percent.
The composite index and its regional sub-indices use the repeat sales pricing technique to measure housing markets by collecting data on single-family home re-sales, and capturing re-sold sale prices to form sale pairs. Price appreciation or depreciation is more accurately reflected by the change in value of the same properties over time across entire market areas rather than the more volatile median home prices published by the National Association of Realtors.
Of the 20 markets tracked by the indices, 14 showed price decreases and 6 showed price increases. Charlotte was up a healthy 7 percent and close behind was Portland at 6.4 percent. Other markets like Atlanta and Dallas showed modest increases of 2.1 percent and 2 percent, respectively.
Steep declines were experienced in several previously frothy markets with San Diego down 6.7 percent, Washington, D.C., down 5.7 percent and Tampa down 5 percent. The Composite Index of 20 markets was down 2.1 percent overall.
So where are we headed in the future? Investor expectations are reflected in housing-price futures and options traded on the Chicago Mercantile Exchange, which are based on a subset of the S&P/Case-Shiller U.S. National Home Price Indices. These property derivatives are traded on indices for a 10-market index and the component markets of that composite: Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco and Washington, D.C.
Expectations of future price changes are implied by the percentage difference in the index value for the relevant market (most recently published on June 26, 2007, for April 2007 period) and the current price of the four traded futures contracts expiring in August 2007, November 2007, February 2008 or May 2008.
Right now investors are betting on a decline in the composite index of 3.3 percent by the end of the first quarter of 2008 (the futures contract expiring in May 2008 is based on that period). They are most optimistic on the New York area expecting a decline of just 2.3 percent and most pessimistic on Denver with an expected decline of 5.5 percent.
As always, remember that these contracts are new and thinly traded relative to well-established foreign exchange or commodities contracts, and that means they are reflective of the collective wisdom of fewer investors. That said, the market is predicting that price declines in many markets will accelerate over the next year. If only it weren’t so rainy in Seattle!
Stephen Bedikian is a partner at Real IQ Consulting, which provides real estate marketing strategy consulting and lead analytics services. He can be reached at sbedikian@realiq.com or (310) 871-3737.
