Thinner! San Francisco Home Price Futures Indicate Further Price Declines (But Futures Volume Is Razor THIN)

When the US housing bubble was in full steam, I was working with a major insurance company on a way to hedge home price risk in major metropolitan areas. Their risk committee thought housing was too risky (hence the reason for trying to hedge the risk). But to no avail.

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The problem with housing futures is … there is very thin volume in trading. Exactly one contract trade on March 12, 2019 at. 261.2.

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Aggregate open interest is a minuscule 20.

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This contracts with the SOFR futures with substantially larger open interest.

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Based on thin depth of trading, the trend line for San Francisco futures is downward sloping. And LAGGING the Case-Shiller home price index.

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If we look at the CFTC CBOE, CME futures activity, home price indices are so thin that don’t show up.

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Home price futures are thinner than other futures contracts, hence one must be careful.

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Low (Rate) Rider! New Home Sales Increase As Mortgage Rates Drop To 4.06% (Core Inflation Drops To 1.4% YoY As Well)

The 30-year mortgage rate is dropping fast and the housing data is low riding on the rate decline.

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And with the drop, both new home sales and existing home sales are enjoying a revival.

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The Core PCE and Core PCE deflator YoY (aka, core inflation) are both declining. The deflator is actually down to 1.4% YoY.

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An Occurrence At The Federal Reserve: Increased SMART Money & Equity Volatility, Crushed Bond Volatility

Ambrose Bierce wrote a short story about a man being hanged during the American Civil War and what went through his mind in his final moments. It is called “An Occurrence At Owl Creek Bridge.”¬†Hauntingly similar to today’s plight: overoptimistic expectations before being hung, then …. snap.

In summary., Ben Bernanke and The Federal Reserve entered the markets in 2008 in force. The Fed Funds Target rate was raised once during President Obama’s two terms as President, but eight times since President Trump’s election as President. Plus, The Fed’s Quantitative Tightening (in terms of its balance sheet) begin in earnest in 2019.

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Once The Fed hurled its monetary weight at the economy in 2008, the stock market had an amazing run. but since The Fed started to raise rates and began their balance sheet unwind, the S&P 500 index has increased in volatility as has the SMART Money Flow Index.

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The bond market volatility indices have gotten crushed by central banks.

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On the real estate front, equity REITs, like the small cap Russell equity indices, seemed to be benefit greatly from The Fed’s Zero Interest Rate Policy and QE. Mortgage REITs, on the other hand, kind of died with the financial crisis and never recovered. The RCA CPPI commercial real estate index too off like a missile.

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Like in the Ambrose Bierce short story “An Occurrence At Owl Creek Bridge,” The Fed and other central banks are quitting any attempts at rate normalization (for fear that they might hear that dreaded “snap” at the end of the monetary rope].

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US Residential Construction Spending YoY Falls To Lowest Growth Rate -1.5% Since 2013 (Slippin’ Into Darkness)

Is housing slippin’ into darkness?

Perhaps. residential construction spending YoY fell in December to its lowest level since early 2013.

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Non-residential construction actually rose 4% YoY in December.

That’s not the way I like it.

 

Case-Shiller 20-City Home Price Growth YoY Slows To 4.18%, Slowest Since September 2012 (Vegas, Phoenix Post Biggest YoY Gains, San Diego Slowest Growing)

S&P Corelogic Case-Shiller indices were released for December (yes Lee Adler, I know it is late February!)  The report reveals that YoY home price growth is 4.18%, the lowest growth rate since September 2012.

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Las Vegas and Phoenix reported the highest year-over-year gains among the 20 cities. In December, Las Vegas led the way with an 11.4% year-over-year price increase, followed by Phoenix with an 8.0% increase and Atlanta with a 5.9% increase. Three of the 20 cities reported greater price increases in the year ending December 2018 versus the year ending November 2018.

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Yes, San Diego has replaced Washington DC as the slowest growing US metro area in term of home prices.

Hopefully, this will lead to fewer people surfing in Cardiff!