HOUSING DERIVATIVES

Housing Derivatives - US Home Sales at 1997 Levels

This week annualized existing home sales and new home sales figures were released.  They were 4,970,000 + 728,000 = 5,698,000 units.  This total figure is at 1997 levels (4,915,000 + 793,000 = 5,708,000 units).  The high figure was between July and September 2005 at 8,599,000 units (7,210,000 + 1,389,000 = 8,599,000 units).  Total annualized US home sales are down 33% since the 2005 peak.

Source: US Census, Bloomberg.

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 rpx futures forward cme

Housing Derivatives - S&P/Case-Shiller Showing Decreasing Sales

The S&P/Case-Shiller Index uses sales-pair observations to calculate its index.  These sales-pairs have been decreasing since the beginning of the year (save for Denver, Boston and Chicago), highlighting the increasing slowdown in liquidity in the underlying physical housing market. 

	SPCS Change in Sale-Pairs 2006 v 2007
	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep
Las Vegas	-32%	-33%	-38%	-46%	-49%	-51%	-51%	-52%
Los Angeles	-15%	-19%	-25%	-31%	-36%	-36%	-38%	-44%
Phoenix	-23%	-24%	-26%	-29%	-30%	-32%	-35%	-40%
Miami	-11%	-18%	-25%	-32%	-32%	-34%	-30%	-36%
Tampa	-33%	-29%	-34%	-38%	-38%	-35%	-33%	-34%
San Francisco	-14%	-13%	-18%	-21%	-25%	-22%	-26%	-33%
Minn	-18%	-11%	-24%	-17%	-27%	-27%	-35%	-30%
Atlanta	-6%	-7%	-10%	-14%	-18%	-19%	-24%	-29%
Wash DC	-13%	-10%	-14%	-21%	-28%	-26%	-23%	-28%
Seattle	-18%	-14%	-16%	-15%	-18%	-19%	-22%	-27%
20-City	-14%	-14%	-17%	-20%	-23%	-23%	-23%	-26%
10-City	-16%	-16%	-19%	-23%	-26%	-26%	-23%	-26%
Detroit	7%	17%	11%	-13%	-29%	-24%	-26%	-23%
New York	-19%	-17%	-14%	-12%	-15%	-21%	-18%	-23%
San Diego	-14%	-16%	-20%	-24%	-22%	-22%	-21%	-23%
Portland	-12%	-12%	-9%	-10%	-11%	-14%	-16%	-20%
Cleveland	-7%	-14%	-18%	-21%	-19%	-16%	-14%	-19%
Charlotte	14%	16%	13%	6%	-4%	-8%	-13%	-16%
Chicago	-24%	-20%	-24%	-27%	-30%	-26%	-17%	-15%
Boston	-9%	-1%	-6%	-6%	-11%	-10%	-5%	-5%
Dallas	18%	14%	10%	2%	-1%	-2%	0%	-3%
Denver	-6%	-2%	-6%	-5%	-4%	-4%	-3%	2%

Source: S&P

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 rpx futures forward cme

S&P/Case-Shiller September 2007 Index Release

Today the S&P/Case-Shiller Index published the September 2007 numbers.  This release settled the November 2007 CME housing futures and options.

	S&P/Case-Shiller Index - September 2007
CME	Sep 06	Aug 07	Sep 07	Aug07 v Sep07	Aug07 v Sep07	Sep06 v Sep07
Bos	176.37	170.84	170.73	(0.11)	-0.06%	-3.2%	Bos
Chi	168.60	165.77	164.42	(1.35)	-0.81%	-2.5%	Chi
Den	139.63	139.70	138.43	(1.27)	-0.91%	-0.9%	Den
LV	234.78	216.83	213.47	(3.36)	-1.55%	-9.1%	LV
LA	273.94	258.07	254.79	(3.28)	-1.27%	-7.0%	LA
Mia	277.23	255.29	249.61	(5.68)	-2.22%	-10.0%	Mia
NY	213.13	206.90	206.28	(0.62)	-0.30%	-3.2%	NY
SD	246.60	226.73	222.82	(3.91)	-1.72%	-9.6%	SD
SF	216.38	208.15	206.46	(1.69)	-0.81%	-4.6%	SF
WDC	224.84	230.25	228.67	(1.58)	-0.69%	1.7%	WDC
10-C	225.54	214.56	212.65	(1.91)	-0.89%	-5.7%	10-C
	Sep 06	Aug 07	Sep 07	Aug07 v Sep07	Aug07 v Sep07	Sep06 v Sep07
Atl	135.10	136.41	135.59	(0.82)	-0.60%	0.4%	Atl
Char	129.04	135.88	135.13	(0.75)	-0.55%	4.7%	Char
Clev	122.27	118.36	117.35	(1.01)	-0.85%	-4.0%	Clev
Dal	125.21	126.32	125.44	(0.88)	-0.70%	0.2%	Dal
Det	122.54	111.58	110.83	(0.75)	-0.67%	-9.6%	Det
Min	171.12	164.18	163.45	(0.73)	-0.44%	-4.5%	Min
Pho	225.20	208.86	205.28	(3.58)	-1.71%	-8.8%	Pho
Port	181.71	186.00	185.67	(0.33)	-0.18%	2.2%	Port
Sea	183.08	192.14	191.66	(0.48)	-0.25%	4.7%	Sea
Tamp	236.42	212.92	210.14	(2.78)	-1.31%	-11.1%	Tamp
20-C	205.80	197.16	195.62	(1.54)	-0.78%	-4.9%	20-C

		CME Housing Expiration Convergence
		Nov 07 Futures	Sep 07	Index vs Futures
		Settlement	INDEX *
Bos		169.60	170.73	1.13
Chi		164.20	164.42	0.22
Den		138.80	138.43	(0.37)
LV		213.60	213.47	(0.13)
LA		254.60	254.79	0.19
Mia		251.00	249.61	(1.39)
NY		204.20	206.28	2.08
SD		225.00	222.82	(2.18)
SF		206.20	206.46	0.26
WDC		227.00	228.67	1.67
10-C		211.60	212.65	1.05
		* The S&P/CSI for September 2007 settles the November 2007 CME housing futures
futures

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 rpx futures forward cme

ABX Marks US Subprime Mortgage Inventory At Approx. 70 Cents On The Dollar

The ABX Index is a series of credit-default swaps based on 20 bonds that consist of subprime mortgages. ABX contracts are commonly used by investors to speculate on or to hedge against the risk that the underling mortgage securities are not repaid as expected. The ABX swaps offer protection if the securities are not repaid as expected, in return for regular insurance-like premiums. A decline in the ABX Index signifies investor sentiment that subprime mortgage holders will suffer increased financial losses from those investments. Likewise, an increase in the ABX Index signifies investor sentiment looking for subprime mortgage holdings to perform better as investments.

The ABX Index has four series (06-1 to 07-2) and five tranches per series. To get a value for the subprime mortgage inventory, one could weight the 20 available ABX values. Hypothetical weights:

06-1 - 35%,  06-2 - 30%,  07-1 - 20%,  07-2 - 15%

AAA - 80%,  AA - 5%,  A - 6.5%,  BBB - 2.4%,  BBB- - 1.1%,  Equity - 5% (marked to zero)

Using the Wednesday settlements (as posted by Markit) for all the available ABX values and the above weights, the subprime mortgage inventory is valued at 69.5 cents on the dollar.  This is a rough estimate and quite imperfect - it assumes weights among the four series themselves and only looks at the subprime mortgages issued since 2H 2005.  This number can, however, provide a order of magnitude figure for the value of the subprime inventory.

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 rpx futures forward cme

Housing Derivatives - Every ABX Derivative Settle On All-Time Lows

The ABX Index is a series of credit-default swaps based on 20 bonds that consist of subprime mortgages.  ABX contracts are commonly used by investors to speculate on or to hedge against the risk that the underling mortgage securities are not repaid as expected.  The ABX swaps offer protection if the securities are not repaid as expected, in return for regular insurance-like premiums.  A decline in the ABX Index signifies investor sentiment that subprime mortgage holders will suffer increased financial losses from those investments.  Likewise, an increase in the ABX Index signifies investor sentiment looking for subprime mortgage holdings to perform better as investments.

Today, every ABX tranche ever issued settled on it's low price. The BBB and BBB- settlements range between 25.46% to 16.89%. Some of the AAAs settled at under 70%. 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.

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

Housing Derivatives - Top Tranches ABX Losing Value

The ABX Index is a series of credit-default swaps based on 20 bonds that consist of subprime mortgages.  ABX contracts are commonly used by investors to speculate on or to hedge against the risk that the underling mortgage securities are not repaid as expected.  The ABX swaps offer protection if the securities are not repaid as expected, in return for regular insurance-like premiums.  A decline in the ABX Index signifies investor sentiment that subprime mortgage holders will suffer increased financial losses from those investments.  Likewise, an increase in the ABX Index signifies investor sentiment looking for subprime mortgage holdings to perform better as investments.

Yesterday, the top tranches of the 07-2 series, AAA and AA, are making a move down to new lows.  These swaps were launched in July 2007 and were never a particularly good store of value.  (Sorry for the teeny graphic.)

 

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.

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

Housing Derivatives - RPX Trading For Hedge Funds

The Financial Times reports on the Radar Logic RPX housing derivatives market.  The article notes that the hedge fund community has started using these derivatives. 

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 rpx futures forward cme

Housing Derivatives - Calculate Your Home's Forward Value With Derivatives

Paper Economy has spent the last two years adding analytical tools to its readers that deliver market intelligence from the CME Housing futures in easy formats. They have introduced HousingDerivatives to a tool that bridges the capital markets to the retail housing market (pay attention Zillow, Trulia, state governors). Paper Economy has a calculator that calculates your home's value against the metric of housing derivatives. It finds the point on the housing data time-series where you bought the house and then follows its value forward in time basis the housing futures 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.

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

Housing Derivatives - S&P To Release More Index Data

Standard and Poor's announced today that they are publishing sales-pairs and tiering data that underly the S&P/Case-Shiller Home Price Indices. 

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 rpx futures forward cme

Housing Derivatives - Radar Logic Volume $250 Million

Radar Logic reported today that RPX housing derivatives trading volume exceeds $250 million in the first seven weeks of trading.  This is a significant milestone achieved in less than two months.  Trading has focused on the RPX 25 City Composite, New York, Los Angeles and Miami MSAs.  Trading in RPX is done through licensed dealers and is quoted in annual housing price appreciation terms (HPA).

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 rpx futures forward cme