HOUSING DERIVATIVES

Housing Derivatives - The ABX Index and The 2008 Resets

Floyd Norris of The New York Times wrote an exellent piece published today about the US mortgage market and the ABX Index. This is one of the best written reports on the ABX Index and the derivatives that are traded around it.

The article states that the mortgages that underlie the 2007-1 series were made as "2-28" loans whose interest rates reset after two years.

When the CME housing futures get extensions on years and the S&P/Case-Shiller Indexes start to trade more robustly in the OTC derivatives market, this 2-3 year housing forward sweet spot will become a widely watched and referenced housing price indicator.

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions..

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Housing Derivatives - ABX BBB- and A Tranches New Lower Low

The BBB- 07-1 tranche of The ABX Index, credit-default swaps based on bonds consisting of subprime mortgages, made a life of contract low today at 54.54%. The A 07-1 gapped lower to 84.27%. The highest rated AA and AAA tranches are just dipping off of their 100% par values.

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions..

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Housing Derivatives - ABX Index Showing Potential For More Profound Subprime Costs

The BBB- 07-1 tranche of The ABX Index, credit-default swaps based on bonds consisting of subprime mortgages, settled today at 56.52%, near its life low.  Of note is the A 07-1 tranche that settled today at 87.44%, a life-of-tranche low.  The A tranche deterioration signal that deliquency breadth and costs may be becoming more profound, thus moving up the pain chain to the A's.  Data source: Markit. 

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions.

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Housing Futures - OFHEO Addresses S&P/Case-Shiller Indexes

OFHEO published a paper this month that analyzes indexation and methodology differences between OFHEO and S&P/Case-Shiller. (Hat tip: Housingwire).

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions..

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Housing Futures & Derivatives - S&P/Case-Shiller April 07 Data

	S&P/Case-Shiller Index - April 2007
	Apr 06	Mar 07	Mar 07R	Apr 07	Mar07 v Apr07	Mar07 v Apr07	Apr06 v Apr07
Bos	177.62	168.52	168.54	169.60	1.06	0.63%	-4.5%	Bos
Chi	165.58	167.04	167.04	165.87	(1.17)	-0.70%	0.2%	Chi
Den	137.28	134.20	134.20	134.86	0.66	0.49%	-1.8%	Den
LV	233.78	228.55	228.55	226.65	(1.90)	-0.83%	-3.0%	LV
LA	270.44	264.58	264.58	263.36	(1.22)	-0.46%	-2.6%	LA
Mia	276.37	276.89	276.89	273.53	(3.36)	-1.21%	-1.0%	Mia
NY	214.97	211.97	212.11	211.65	(0.46)	-0.22%	-1.5%	NY
SD	249.35	233.28	233.28	232.64	(0.64)	-0.27%	-6.7%	SD
SF	217.52	211.09	211.09	211.47	0.38	0.18%	-2.8%	SF
WDC	248.86	236.96	237.11	235.29	(1.82)	-0.77%	-5.5%	WDC
Comp	224.99	219.54	219.59	218.93	(0.66)	-0.30%	-2.7%	Comp

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions..

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Housing Derivatives - ABX BBB- New Lower Low

The BBB- 07-1 tranche of The ABX Index, credit-default swaps based on bonds consisting of subprime mortgages, made a life of contract low today at 56.18%.  "Insurance" on the BBB- rated tranches now costs nearly 50% of the principal. Data source: Markit. 

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions..

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Housing Derivatives - ABX BBB- Makes New Low (Again)

The BBB- 07-1 tranche of The ABX Index, credit-default swaps based on bonds consisting of subprime mortgages, made a life of contract low today at 57.95%.  Of note is the A 07-1 tranche that settled today at 89.81%, a life-of-tranche low.  Data source: Markit. 

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions..

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Housing Derivatives - Hong Kong Indexes For Trading

The University of Hong Kong Real Estate Index Series is a monthly real estate index that tracks the changes in the general price level of residential properties in Hong Kong.  It is cut into Hong Kong Island, Kowloon and New Territories.  Here is the methodology paper: Download hku_real_estate_methodology.pdf.  Here is the price series: Download hku_price_charts.xls.   

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions..

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Housing Derivatives - ABX BBB- New Low

The BBB- 07-1 tranche of The ABX Index, credit-default swaps based on bonds consisting of subprime mortgages, made a life of contract low today at 59.79%.  Data source: Markit. 

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions..

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Housing Futures & Derivatives - Housing Futures Term Listings and OTC Forwards

In 1992, Robert Shiller, Karl Case and Allan Weiss authored a paper titled Index-Based Futures and Options Markets in Real Estate.  The paper is available on the internet.  The paper proposes the opening of a cash-settled futures and options market.

Of note is a section on page 14 (page 15 of the file) titled "Horizons of Futures and Options Contracts."  This section analyzes term structure for housing futures and options contracts and makes a conclusion:

"... We think that there may be less concentration of trade in the nearest contract in the house futures and options contracts, and there may be substantial trade in very distant maturities.  Part of the reason for this is that there should be substantial long-run hedging demand by homeowners, who will wish to sell a futures contract or buy a put with years to maturity.  Institutional investors may also wish to hold a large part of these long-horizon contracts...." 

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions..

housing derivatives housing futures hedging case-shiller index radar logic futures forward cme jonathan miller