HOUSING DERIVATIVES

Housing Futures & Derivatives - S&P/Case-Shiller Indexes For May 2007 Released

Below is table showing the month-on-month change of the S&P/Case-Shiller Index:

S&P/Case-Shiller Index - May 2007

Apr07 v May07

Bos +0.80%
Chi -0.11%
Den +1.08%
LV -0.82%
LA -0.06%
Mia -1.47%
NY -0.45%
SD -0.36%
SF -0.27%
WDC -0.43%
Comp -0.29%

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 - The Highest ABX Index Tranches Make New Lows

The highest rated tranches of The ABX Index, credit-default swaps based on bonds consisting of 20 subprime mortgages , for the 07-2, 07-1 and 06-2 series all settled on their lifetime lows. These tranches, AAA, AA and A, are the "most secure" investment series of the subprime mortgage derivatives indices. Source: Markit.

Housing futures and forwards are showing lower housing prices into 2008 and 2009 in all US metro areas. Tomorrow, the May 2007 S&P/Case-Shiller Home Price Indices are released.

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 - Taking A Financial View On US Housing Prices

There are several financial securities available for expressing a view on the US housing market.  They are all notably different, in that they cross equity, fixed income and "commodity" asset classes.  Because of these differences, the change in housing prices and the change in value of these other financial instruments may be moving in parallel universes over a period of time.  They are all members of the same "real estate" family but may arrive to different places financially.

The core products available for expressing a view in real estate markets are as follows:

• Direct Investment
• Equities
• Residential Mortgages and ABX Indices
• Housing Futures and Forwards

The advantages of housing futures and forwards are:

• Pure play on housing market
• Transparency
• Simple or complex to suit
• Allow for national, regional or specific MSA exposure

The major disadvantage right now to US housing futures and forwards is its untested trading liquidity.  When trading liquidity grows in breadth and depth, then housing futures and forwards will fulfill its potential.

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 - More Appetite To Trade Housing Derivatives

Business Week published a short srticle on S&P/Case-Shiller Home Price Index and Radar Logic home price index. The article contends that the US housing "bust" has heightened the professional investor appetite to trade derivative contracts that settle against these home price indices. Radar Logic is expecting trading to begin this September. The CME plans to introduce multiyear futures and options listings for the S&P/Case-Shiller Home Price Indices. Existing CME futures and options extend out one year right now.

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 - First Japan Property Derivatives Trade

A Japan index real estate derivative traded between Royal Bank of Scotland and Grosvenor, marking the first ever property derivatives trade for Japan.  The index was supplied by IPD, the leading real estate derivatives index provider for the UK and European markets. 

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 - ABX Gaps Lower, All Tranches

The BBB- 07-2 tranche of The ABX Index, credit-default swaps based on bonds consisting of 20 subprime mortgages , is available to subprime mortgage derivatives investors. Today the ABX BBB- 07-2 series, referencing 20 subprime ABSs issued in first half 2007, settled at 40.39%. The ABX BBB- 07-1 settled today at 37.72%, it's all-time low. Source: Markit.

The ABX AAA 07-1, the highest tranche of the 07-1 series, settled at 92.97%. This is the lowest value for any of the AAA tranches - the highest mortgage recovery tranche with the subprime mortgage derivatives space is expecting losses.

Housing futures and forwards are showing lower housing prices into 2008 and 2009 in all US metro areas.

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 - ABX Subprime Mortgage Index On Lows

The BBB- 07-2 tranche of The ABX Index, credit-default swaps based on bonds consisting of subprime mortgages, is the new BBB- series on offer for subprime mortgage derivatives investors. Today the 07-2 series, referencing 20 subprime ABSs issued in first half 2007, settled at 47.31%. The ABX BBB- 07-1 settled today at 41.79%, it's all-time low. Source: Markit.

The ABX AAA 07-1, the highest tranche of the 07-1 series, settled at 95.05%. This is the lowest value for any of the AAA tranches - the highest mortgage recovery tranche with the subprime mortgage derivatives space is expecting losses.

Housing futures and forwards are showing lower prices into 2008 and 2009 in the Miami and LA metro areas. These two MSAs have the highest issuance of subprime mortgages since 2005.

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 - ABX On All-Time Lows

The BBB- 07-2 tranche of The ABX Index, credit-default swaps based on bonds consisting of subprime mortgages, is the new BBB- series on offer for subprime mortgage derivatives investors. Today the 07-2 series, referencing 20 subprime ABSs issued in first half 2007, settled at 47.86%. The ABX BBB- 07-1 settled today at 42.10%, it's all-time low. Source: Markit.

The highest tranches of the ABX Index, the AAAs, are all fully off of their 100% par values, with the 06-2, 07-1 and 07-2 AAA series settling at 96.43%, 95.13% and 98.03%, respectively.

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 - New ABX Index BBB- Series Debuts At 50 Cents On The Dollar Value

The BBB- 07-2 tranche of The ABX Index, credit-default swaps based on bonds consisting of subprime mortgages, is the new BBB- series on offer for subprime mortgage derivatives investors. Today was the debut of trading for the 07-2 series, referencing 20 subprime ABSs issued in first half 2007. The ABX BBB- 07-2 settled today at 50.33%, it's first day of trading. The ABX BBB- 07-1 settled today at 44.86%. 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 - California Seminars

The US Property Derivatives market is opening its doors and creating lots of opportunity where upfront costs used to be to difficult to overcome for the individual, but also hedging opportunities and allocation ideas for institutions.

Next week, TFS Derivatives Corp., a leading broker of US housing derivatives, will be hosting seminars in San Francisco and Los Angeles.  The target audience for the seminars are investors, real estate brokers, financial consultants and asset managers.  The seminars are small (maximum 15 attendees) and discuss what is trading in the real estate derivatives and how to get access to these markets.  TFS hosts a successful seminar program series for real estate derivatives in the US and Europe.

Seminar topics include: Real Estate Returns Risk, Commercial Real Estate Total Return Swaps, Housing Futures and Forwards, Derivatives Contracts and Markets.

Please visit the Seminars section of the blog to get date, address and RSVP details.

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 - ABX Sets New Lows

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 and settled at 45.00% (there were reports today of an intraday low of 43.00%).  All the 07-1 series tranches (save for the AAA, AA and BBB) settled at life-of-contract lows. Source: Markit.

Tomorrow, a new ABX index will be launched, the ABX 07-2 series. Investors and porfolio managers are quoted as expecting this new series to be under the same pressures as the 08-2 and 07-1 ABX series.

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 - ABX Still Lower

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 and settled at 45.02%.  The A 07-1 made a new low of 68.50%.  The ABX index trading is capturing the liquidity for reducing or hedging subprime mortgage risk.  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 - ABX Lower, All Tranches

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 and settled at 45.28%.  The A 07-1 gapped lower to 69.35%. The second-highest rated AA 07-1 tranche broke 90% to settle at 88.17%.  Of note is that the highest rated AAA 07-1 tranche made a dip to settle at 95.53%.  Source: Markit.

The ABX is showing that the market in subprime loans is expecting widespread defaults.  Some subprime mortgage investors are using the ABX to try to "hedge out" their risk rather than selling the loans themselves.  The highest tranche AAA 07-1 is dipping 5% off of "par" to signal that subprime investors are seeking protection at the highest mortgage recovery levels.  A new index series is scheduled to start trading this month.

The CME housing futures market is pointing to lower prices across the country for Q2 2008.  The lower forward prices fan the ABX and the vice-versa; it's a potentially self-perpetuating relationship among the derivatives and their respective cash markets.

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 - Ripe Conditions

On April 5, 2007 a seminar in Phoenix titled "Frontiers in Real Estate: Hedging Your Bets" addressed the capital market trends in housing and the potential for housing price risk transfer with housing derivatives. Conditions for hedging property were considered "ripe."

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 - ABX Gapping Lower All Tranches

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 and settled at 48.64%.  The A 07-1 gapped lower to 75.92%. The second-highest rated AA 07-1 tranche is dipping off to 93.39%.  Of note is that the highest rated AAA 07-1 tranche made a dip to settle at 97.89%.  Source: Markit.

The ABX is showing that the market in subprime loans is under sever stress.  The highest tranche AAA 07-1 is dipping off of its 100% "par" to signal that subprime investors are seeking protection at the highest mortgage recovery levels.  The 06-1 and 06-2 vintages are fairing better than the 07-1, but only marginally so.  These vintages have been moving lower in lock step with the more volatile 07-1.

The CME housing futures market is pointing to lower prices across the country for Q2 2008.  The lower forward prices fan the ABX and the vice-versa; it's a potentially self-perpetuating relationship among the derivatives and their respective cash markets.

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 - ABX Making New Lows

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 and settled at 51.42%.  The A 07-1 gapped lower to 79.33%. The second-highest rated AA 07-1 tranche is dipping off to 95.11%.  Of note is that the highest rated AAA tranche made a dip to settle at 98.23%.  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 - SW Connecticut - June 07

The data below is from WRG Homes, a Westport, CT, a Fairield county real estate brokerage.  The S&P/Case-Shiller Index for New York includes Fairfield county.

FAIRFIELD	# of Listings	# of Sales	Avg Price	Days on Mkt
January-06	277	13	$871,846	134
February-06	300	14	$716,286	104
March-06	335	22	$912,818	94
April-06	541	19	$662,947	128
May-06	524	18	$536,738	74
June-06	497	28	$885,518	70
July-06	479	16	$730,281	72
August-06	555	64	$1,054,089	76
September-06	532	36	$668,633	84
October-06	562	35	$732,469	76
November-06	487	45	$831,702	88
December-06	343	45	$765,496	100
January-07	465	48	$636,308	83
February-07	477	33	$1,031,348	104
March-07	512	59	$961,589	97
April-07	495	67	$769,991	100
May-07	583	72	$1,018,941	89
June-07	530	102	$889,477	79
WESTPORT	Listings	Sales	Avg Price	Days on Mkt
January-06	240	7	$1,435,857	87
February-06	252	8	$2,115,625	147
March-06	264	9	$2,850,867	113
April-06	356	28	$1,463,692	70
May-06	365	8	$1,731,000	130
June-06	358	6	$1,323,333	78
July-06	341	3	$738,333	89
August-06	349	40	$1,580,063	105
September-06	339	37	$1,395,066	89
October-06	341	20	$1,238,800	111
November-06	296	20	$1,497,650	121
December-06	215	24	$1,443,671	100
January-07	292	16	$1,657,531	114
February-07	314	11	$1,260,205	116
March-07	346	26	$1,517,019	125
April-07	313	33	$1,790,094	111
May-07	343	51	$1,942,630	108
June-07	329	61	$1,638,738	87

NORWALK	Listings	Sales	Avg Price	Days on Mkt
January-06	264	21	$600,236	87
February-06	278	18	$668,747	80
March-06	N/A	N/A	N/A	N/A
April-06	417	28	$636,284	98
May-06	443	30	$651,154	74
June-06	426	25	$655,076	97
July-06	387	21	$553,868	92
August-06	484	69	$646,897	90
September-06	410	60	$906,983	104
October-06	462	56	$640,730	71
November-06	405	54	$660,990	76
December-06	290	58	$591,809	82
January-07	370	39	$763,859	125
February-07	384	28	$628,564	106
March-07	427	55	$661,720	89
April-07	420	48	$754,308	81
May-07	524	54	$694,685	80
June-07	513	60	$732,600	95

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 - Hot and New Derivatives Products

The Wall Street Journal Online posted a thorough article that examines the markets for derivatives.  The article looks at successful derivatives products in the US as well as some new listed-derivatives products that were introduced since 2000.  The CME's housing futures and options contracts are discussed in the context of new products.

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 - Inman Interview On Housing Derivatives

Inman News published an interview with Tradition Financial Services about the US housing derivatives market.  TFS is bullish on the prospects for robust US housing and commercial real estate derivatives markets.

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 - $4 Billion Traded To Date In UK Housing Derivatives

Reuters is reporting that a UK investment boutique is launching a UK residential housing derivatives fund.  The fund would use derivatives that trade on the UK Halifax House Price Index.   

"...We are the first to launch a residential derivatives fund based on the HHPI which is a conservative market tracking product that can be leveraged, or non-leveraged, according to investor requirements," ABFM founding partner Robert Page said in a statement.  The note said there had probably been about 2 billion pounds ($4.02 billion) notional value traded on the Halifax index to date -- less than a third of the cumulative notional value recorded in the UK's commercial property derivatives market."

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 - The Subprime ABX Index AA and A Tranches Weakening

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 54.06%.  The A 07-1 gapped lower to 82.13%. The second-highest rated AA 07-1 tranche is dipping off to 98.74%.  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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What Housing Derivatives Really Mean For You

The housing derivatives market is the biggest single new innovation in the U.S. housing market.  For the last year, a sound and secure derivatives market for U.S.housing has emerged.  Investors and developers can now express their views of the housing market with CME-listed futures and options contracts and OTC forwards and options using the S&P/Case-Shiller Index. Investors for the first time can invest in a diversified housing portfolio without the large transaction or management costs.

Over the last year, some $400 million in housing derivatives traded.  Many of the transactions have been options - investors and hedgers taking positions both at the money and way out of the money.  This fall, the CME is planning to extend the housing futures listings to perhaps 6 years. This would give users the ability to make transactions over a wide range of timing horizons.

All parties with housing market risk will be able to:

·        view a transparent, multiyear housing market; and

·        take financial positions in housing prices. 

These markets assist price discovery for housing, providing a predictive snapshot from the professional financial community. Through derivatives contracts, investors to increase or decrease housing price risk.

What does this all mean for the typical home owner or real estate investor? Despite the complexities, the end-consumer benefits of financial derivatives are everywhere, we just don't notice them. Mortgage rates are low in part because of mortgage market derivatives. Southwest Airlines can keep its prices low, even in the face of soaring fuel costs, in part because of successful fuel derivatives.

Because of housing derivatives, home price products like insurances and equity-participation mortgages will soon become available.  The banking industry will develop structured notes that use housing prices to increase or decrease money yields. These products in turn help individuals manage how much they want to risk in real estate, and give them more options, ultimately bringing the costs of real estate transactions down and raising housing market intelligence. That's a good thing.

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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