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San Francisco New-Home Construction Report

The SF Planning Department just released updated Q3 information regarding the new-housing development pipeline. San Francisco is in the midst of one of its biggest new-housing construction booms in history. (The same is occurring on the commercial development side, but this report won’t deal with that.) Indeed, it often seems that new projects of one kind or another are being announced on an almost daily basis, and a detailed map delineating all projects in some stage of the pipeline makes many city districts appear to have measles.

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New housing construction has lagged population pressures for decades – pressures which have soared during the current economic and employment boom – and now there is a scramble to address the inadequacy of housing supply, and, for developers/investors, to reap the rewards of a high demand/low supply dynamic in one of the most affluent and expensive housing markets in the world.

Currently, there are approximately 59,000 housing units of all kinds – luxury condos, rental apartments, market rate and affordable units, and social project housing – in the relatively near-term pipeline (next 5 to 6 years). Most are in the Market Street corridor area, the Van Ness corridor just above Market Street, and in the higher-density housing districts to the southeast of Market Street (see map). If we add the mega-projects planned for Candlestick-Hunter’s Point, Treasure Island and Park Merced, which may take decades to become a reality, the number jumps to over 80,000. As a point of context, there are approximately 382,000 residential units in San Francisco currently. About 3500 new units were added in 2014.

Housing supply and affordability issues, strong feelings regarding neighborhood gentrification and tenants’ rights, and even simple NIMBYism (or in SF, NBMVism, “not blocking my view!”) make development the most contentious political issue in San Francisco. Furious battles are ongoing in the Board of Supervisors, the Mayor’s office and the Planning Department; with neighborhood associations and special interest groups; and at the ballot box. Development is not for the faint of heart or shallow of pocket: One cannot contemplate building virtually anything in the city without vehement opposition and sometimes a well-funded coalition in opposition. For developers, the equation to be penciled out includes high costs, enormous hassle-factor and extended project timelines on one side, and the potential for large financial returns on the other. In new San Francisco developments, condos often sell for $1250 per square foot and above, and 500 square foot studio apartments can rent for up to $3500 per month.

Of the units in the greater pipeline of 80,000 units, over 9000 units are designated as “affordable housing” – but about 5000 of those are in the long-term Candlestick-Hunter’s Point and Treasure Island projects. Because of the nature of the political environment, much to do with how much affordable housing will be built is in flux. Many developers are in intense negotiations with government agencies and neighborhood associations to find a workable compromise between return on investment on one hand, and unit mix and affordable housing requirements on the other. Said requirements may consist of a percentage of units in the project, building affordable units elsewhere in the city, or contributing substantial amounts to the city’s affordable housing fund in lieu of building.

New housing construction is very sensitive to major economic, political and even environmental changes (i.e. natural disasters), so simply because something is in the pipeline doesn’t mean it will be completed as planned within the timeframe contemplated. First of all, plans are constantly being changed in the normal course of things. And if a big financial or real estate market correction (or crash) occurs, as happened in late 2008, projects in process can come to a grinding halt, and new projects substantially altered, delayed or abandoned. Because the timeline in San Francisco can run 3 to 6+ years, from initial filing with Planning to construction completion, developers and their financiers make enormous financial bets on what the future will look like. Timing is everything in real estate development, and can make the difference between exceedingly large profits and bankruptcy. When the music stops – which it always does sooner or later, though the time range of opportunity can vary greatly – not everyone will find a chair to sit down in. That especially applies to those who over-leveraged their projects.

As a side note, big Chinese developers have been investing in both large residential and commercial real estate development projects in the Bay Area, and, according to reports, continue to aggressively seek additional opportunities. Though significant – constituting billions of dollars in investment – these projects do not constitute the greater part of Bay Area development.

The Planning Department’s pipeline-report webpage is here: http://sf-planning.org/index.aspx?page=1691

And if it keeps snowing, you will find me here.

Housing Affordability and Market Corrections

A look at San Francisco Bay Area housing affordability trends over time and how they intersect with real estate market corrections:

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The 2008 San Francisco Bay Area real estate crash was not caused just by a local affordability crisis: It was triggered by macro-economic events in financial markets which affected real estate markets across the country. It’s important to note that in the past, major corrections to Bay Area home prices did not occur in isolation, but parallel to national economic events. Ongoing speculation on local “bubbles” often neglect to remember this.

Still, dwindling affordability is certainly a symptom of overheating, of a market being pushed perhaps too high. Looking at the chart above, it’s interesting to note that the markets of all Bay Area counties hit similar and historic lows at previous market peaks in 2006-2007, i.e. the pressure that began in the San Francisco market spread out to pressurize surrounding markets until all the areas bottomed out in affordability. This suggests that one factor or symptom of a correction, is not just a feverish San Francisco market, but that buyers can’t find affordable options anywhere in the area. We are certainly seeing that radiating pressure on home prices occurring now, starting in San Francisco and San Mateo (Silicon Valley) and surging out to all points of the compass.

San Francisco, with a Housing Affordability Index (HAI) reading of 10% is about 2% above its all-time historic low in Q3 2007, but affordability in most other Bay Area counties, while generally declining, still remain significantly above their previous lows. By this measure, the situation we saw in 2007-2008 has not yet been replicated.

Significant increases in mortgage interest rates would affect affordability quickly and dramatically, as interest rates along with, of course, housing prices and household incomes, play the dominant roles in this calculation.

Note that Affordability ratios are just one relatively blunt measuring tool, and there are certainly other factors at play affecting our real estate market: local (high-tech boom; surging population, employment and wealth; inadequate housing supply, rental rates, etc.), national (financial markets, unemployment rates, consumer confidence, etc.) and, nowadays, even international economic factors (such as recent events in the Chinese stock markets and the EU).

Information on the methodology behind the California Association of Realtors’ HAI can be found here.

Speaking of financial markets, we decided to take a look at how the recent volatility played out in the S&P 500 and the Shanghai stock indices. These indices are constantly fluctuating, but the general picture has not altered significantly since we graphed this in early November:

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Luxury Home Segment Cools | “Affordable” Homes Market Remains Competitive

In case you don’t get sfnewsletter (I posted this there), here is our November 2015 San Francisco Real Estate Market Report, including 11 Custom Charts:
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San Francisco led the Bay Area and the nation when its real estate recovery began in early 2012. Within the city itself, the more affluent neighborhoods led the rebound from the 2008 – 2011 recession and saw the highest rates of home price appreciation. That dynamic began to shift in 2014, when the more affordable neighborhoods began to take the lead in demand and in appreciation. All price segments in San Francisco have cooled off from the overheated frenzy of the spring 2015 selling season – this cooling is a common seasonal phenomenon – but while lower and mid-priced homes in the city have continued to remain solidly in “seller’s market” territory, in the luxury home segment, the dynamic between buyers and sellers has fundamentally shifted, at least for the time being.

A number of reasons may explain this: Firstly, the affluent are much more invested in the stock market than other groups, and the volatility of late August, early September may have encouraged more wealthy homeowners to sell (before things might possibly get worse), and more wealthy homebuyers to postpone buying until things clarified. As of very early November, the S&P 500 has regained its lost ground from August, so this effect may fade. Secondly, it’s certainly possible that sellers and listing agents have finally pushed the envelope on prices a little too far: San Francisco’s high prices have clearly motivated some buyers to look at options outside the city (which has helped pressurize the markets of other counties). Last but not least, more and more luxury condos are being built in San Francisco: Growing supply not only gives buyers more options and more negotiating room, but it decreases the urgency to write strong offers quickly or the motivation to compete with other buyers.

However, the luxury home market hasn’t “crashed”: there are still high-end homes selling very quickly for very high prices amid competitive bidding. But it has markedly cooled and the number of luxury home listings in San Francisco hit a new high in October, so correct pricing has becomes increasingly vital. It remains to see if this change is just a transitory market blip – such blips are not uncommon in financial or real estate markets – or the beginning of a longer term reality.

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Median Sales Price by Month

Even with the general cooling in the market since spring and the significant slowdown in higher end home sales, the overall median sales price for houses and condos bounced back up to $1,200,000 in October. Median prices are impacted by seasonal trends: typically peaking in the spring, dropping in the summer, up again in the autumn and then plunging during the winter holidays. This has more to do with inventory than with changes in fair market value. Short-term fluctuations are not particularly meaningful: It is the longer-term trend that gives a sense of what’s going on in the market.

For houses alone, the median sales price in October was $1,300,000 and for condos, it was $1,100,000.

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Supply & Demand Statistics
by Price Segment, October 2015

Months Supply of Inventory (MSI) is a classic measurement of supply and demand, calculating the time it would take to sell the existing inventory of homes for sale at the current rate of market activity. The lower the MSI, the greater the demand as compared to the supply, i.e. the hotter the market. The house market in San Francisco has been stronger than the condo market since the recovery began – though the condo market has been crazy hot as well – because the supply of houses is more limited and is dwindling as a percentage of sales because virtually no new houses are being added to inventory. However, new condos are being built in quantity. This chart above illustrates the dramatic difference in the markets for homes up to the median price ($1.3 million for houses, $1.1 million for condos) and in the next price segment higher, versus the luxury home segment, defined here as houses selling for $2,000,000+ and condos for $1,500,000+. (By this definition, luxury sales currently make up about 20% of San Francisco’s home sales.)

Because SF has been so hot for so long, we’ve adjusted the thresholds for what MSI readings define “seller’s market” and “buyer’s market” to better reflect the psychology of the current market.

Luxury Home Listings for Sale

As mentioned earlier, the number of high-end house and condo listings hit all-time highs in October, while sales numbers are well below levels hit in the previous 2 years. Even more so than the general market, the luxury segment is dramatically affected by seasonality and typically goes into deep hibernation from Thanksgiving to mid-January. Having so many active listings on the market just prior to the winter holiday doldrums is one of the reasons why we designate the luxury-home segment as currently having moved into “buyer’s market” territory.

The Luxury Home Market: Months Supply of Inventory
Year over Year over Year Comparisons

This chart above illustrates the change in the luxury home market supply and demand balance over the past three Octobers. As a further point of context to what has happened in the past year, during the feverish market of this past spring, the MSI for luxury houses hit a low of 1.6 months of inventory and the MSI for luxury condos hit a low of 1.7 months. Since 2012, spring has consistently been the hottest, most competitive, selling season of the year and most home price appreciation has occurred during that time.

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4 Neighborhood Snapshots

Much more information regarding SF neighborhood prices and trends can be found here: San Francisco Neighborhood Values

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Average Asking Rents in San Francisco

The real estate market has been challenging for homebuyers these past few years, but for anyone looking to rent a home in the city, it has been distinctly more difficult financially. Homebuyers have the benefit of historically low interest rates, multiple tax advantages and, hopefully, substantial appreciation gains over time; renters enjoy none of those advantages (though admittedly there can be long-term benefits to rent control for renters that qualify). Even with the big jump in home prices over the past 4 years, factoring in the 35% – 40% decline in interest rates and adjusting for inflation, the ongoing monthly cost of homeownership (for someone putting 20% down) is roughly the same as it was in 2007. But average monthly asking rents in the city have surged over 50% during the same period.

This has made rental property ownership an increasingly lucrative proposition, which we discuss in more detail in our last Commercial Brokerage report: Bay Area Apartment Building Market

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Median Household Incomes

In Selected San Francisco Zip Codes

By Bay Area County

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Mission To Millennium | SF’s Top 10 Underbids of the Week

The top underbid of the week goes to an Outer Mission single family home that (dare we say) needs a bit of work. Listed for $699,000 and sold for $575,000 after 62 days on the market. According to our data from last week, single family homes continue to take up the majority of the top 10 underbid slots: 50% single family homes, 30% multi-units, and 20% condo.

As we get into the winter months, we are seeing luxury homes cooling down but affordable homes remaining competitive. One other notable Underbid is this wonderful Millennium Tower residence with million dollar water and landmark views on both sides of the Bay. Listed at $4.588M and sold for $4.18M after 122 days. Still a win, IMO.

As for the rest, here you go:

Address BR/BA/Units List Price Sold Price Underbid
2220 Cayuga Avenue 1/1/1 $699,000 $575,000 -17.74 %
161-165 Cook Street 2-4 Units $2,395,000 $2,150,000 -10.23 %
2287 16th Avenue 4/2/2 $1,388,000 $1,250,000 -9.94 %
18 Kronquist Court 4/2/1 $1,899,000 $1,725,000 -9.16 %
301 Mission Street #49D 2/3/2 $4,588,000 $4,180,000 -8.89 %
78 Gladys Street 3/2/0 $1,195,000 $1,100,000 -7.95 %
1437 47th Avenue 1437A 2-4 Units $1,275,000 $1,175,000 -7.84 %
2829 Pierce Street 2831 2-4 Units $2,970,000 $2,750,000 -7.41 %
3260 Baker Street 3/2/2 $2,999,000 $2,800,000 -6.64 %
2040 Franklin Street #506 0/1/1 $575,000 $540,000 -6.09 %

As is always the case, if you have any questions about the market, your home, homes in your area, or real estate referrals around the world, I am here to help. Just give me a shout by choosing any of the “contact” options all over this site.

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$440,000 Under Asking | Personal Chapel Maybe Included, Wallpaper Definitely

It only took seven months, but in the end, it got there. SOLD for $440,000 UNDER asking!

You read that correctly, this 6-bedroom single family home in Mission Terrace at 100 Delano Avenue just closed $440,000 below the original (back in March) asking price of $1,600,000. After a price chop to $1.5, then $1.4, then again to $1.3, it appears the Lord finally took pity on this property and landed it on top of this week’s Top 10 Underbids. With plenty of extra space, awesome curtains, wow-tastic wallpaper, and your own “personal chapel” how could you not want to move right in!?

As for the other buyer scores, here you go:

Address BR/BA/Units List Price Sold Price Underbid
100 Delano Avenue 6/3/3 $1,300,000 $1,160,000 -10.77 %
355 Bryant Street 2/2/1 $2,345,000 $2,100,000 -10.45 %
18 Palm Avenue 4/3.5/2 $4,995,000 $4,525,000 -9.41 %
1264 Bush Street 1/1/0 $649,000 $590,000 -9.09 %
78 Gladys Street 3/2/0 $1,195,000 $1,100,000 -7.95 %
1437 47th Avenue 1437A 2 unit $1,275,000 $1,175,000 -7.84 %
601 4th Street #321 1/1/1 $1,499,000 $1,400,000 -6.60 %
2040 Franklin Street #506 0/1/1 $575,000 $540,000 -6.09 %
2730 Broderick Street 4/3.5/1 $5,850,000 $5,500,000 -5.98 %
301 Mission Street #51D 2/3/1 $4,495,000 $4,250,000 -5.45 %

You see…”deals” can still be had in San Francisco.

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August Case-Shiller Index | San Francisco Bay Area

The new S&P Case-Shiller Index for August was just released on Tuesday. The prices for homes in the upper third of prices – which dominate in most of San Francisco, central and southern Marin, and central Contra Costa – ticked down a tiny bit in summer, exactly as they did last summer. These short-term fluctuations are common and not particularly meaningful until substantiated by a longer-term trend.

Since Case-Shiller’s SF Metro Area covers 5 counties, it should be noted that not all the markets within the Area move in lockstep: activity and appreciation rates can vary significantly.

As is clearly illustrated below, for the past 4 years, spring has been the big driver of home-price appreciation. Prices generally plateau in subsequent seasons until the next spring arrives. For the past couple years, the spring selling season has started very early, in late January or early February, due to the incredible weather we’ve had in those months. El Niňo, if it arrives, might move the spring pick-up in sales back to mid-March/early April in 2016.

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This second chart illustrates the huge burst in prices this past spring. It’s not unusual for the market to slump a little during the summer holidays, almost in exhaustion after the spring frenzy. We’ll have more autumn statistics soon when October’s MLS data comes in, but Paragon has been experiencing its most active autumn selling season in its history in 2015.

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And here are 3 longer-term charts for each of the 3 Case-Shiller price tiers for the 5-county San Francisco metro statistical area. As can be seen, the different price tiers had bubbles and crashes of radically different magnitudes in 2006 – 2009, but as far as total appreciation since the year 2000, all of them display very similar appreciation rates.

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That ought to do it for your data craving for a while. You might consider following this blog via email (link below) or get on the Twitter train @theFrontSteps, so you don’t miss a beat of San Francisco Real Estate.

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Active Listings By Price Segment and Property Type

These Broker Metrics charts track weekly number of Active Listings over the past 6 months (early May to mid-October):

SFD, under $1m Active Listings – weekly inventory just below 6 month average, about same level as spring, lowest number of active listings since early July.

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Condo, under $1m Active Listings – autumn inventory levels well above (about 25%) spring-summer levels

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SFD, $1m – $1.499m Active Listings – weekly inventory just fell below 6-month average

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Condo/Co-op, $1m – $1.499m – autumn inventory running far above (about 40%) spring-summer inventory levels

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SFD, $1.5m – $1.999m Active Listings – autumn inventory levels well above (about 30%) spring-summer levels

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Condo/Co-op, $1.5m – $1.999m – autumn inventory levels well above spring-summer levels

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SFD, $2m – 2.499m Active Listings – autumn listing inventory running well above (33%) 6-month average, and equal to mid-May levels

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Condo/Co-op, $2m+ Active Listings – inventory running about 25% above 6-month average, and well above spring-summer levels

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SFD, $2.5m+ Active Listings – inventory running about 29% above 6-month average, and about 20% above May levels

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San Francisco Condo Prices Down 3% Since Month Prior, Up 15% YTD

SAN FRANCISCO CONDOMINIUM PRICES DECLINED 3 PERCENT IN SEPTEMBER FROM PREVIOUS MONTH, UP 15 PERCENT FROM LAST YEAR

Resale Inventory Surpasses Two Months of Supply for First Time in Two Years
According to The Mark Company Trend Sheet

San Francisco – October 14, 2015 – San Francisco condominium prices declined 3 percent from the previous month according to the Condominium Pricing Index released today by The Mark Company, a leading urban residential marketing and sales firm.
The San Francisco Condominium Pricing Index fell to $1,294 per-square-foot in September, retreating from the $1,340 per square foot record set the previous month, but remains 15 percent higher than September 2014. Monthly appreciation during this time of year is typically low or even negative.

There are approximately 656 new condominiums for sale in San Francisco, marking the lowest inventory level since March of this year. The scarcity of inventory will be eased slightly when sales commence at several developments during the fourth quarter of this year, including 41 units at 450 Hayes in Hayes Valley and 34 units at LuXe in Pacific Heights.

Prices for resale condominiums also decreased slightly to an average of $953 per-square-foot, falling 2 percent compared to August. Despite the recent decrease, prices are still 8 percent higher than one year ago. The number of resales is trending downward, falling 19% since last month, and 25% year-over-year.

“There are currently 395 active resale condominium listings in San Francisco, representing 2.4 months of supply. This is the first time in over two years that active inventory has increased to more than two months of supply, however inventory is still extremely low,” said Erin Kennelly, senior director of research, The Mark Company. Six months of inventory is considered to be the equilibrium between a buyers and seller’s market.

New construction absorption (the number of new condominiums placed into contract), fell approximately 25 percent in September, following a decline of 39 percent in August. “Slowdown is typical in the late summer, however absorption is still 36 percent higher than the same month one year ago,” noted Kennelly.

The Condominium Pricing Index, part of the firm’s monthly Trend Sheet (available at http://www.themarkcompany.com), is based on recent sales data, and uses a proprietary quantitative method to measure trends in market demand. It tracks the value of a new construction condominium without the volatility of inventory changes.

Luxury vs. non-luxury Market and the price of overpricing

We’ve always known that seasonality plays a big role in real estate, but this MSI chart shows 1) that the lower-priced (under $2m) market has the most competitive supply and demand dynamic, and 2) how much more seasonality affects the luxury home end of the market. Homes under $2m ebb and flow by season, but the fluctuations are much more dramatic in the luxury home segment.

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These 2 charts below illustrate how overpricing can dramatically affect the sales price to original list price percentage and the average days on market, and overpricing tends to negatively impact the sales price:

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In case you missed the very important quote from House Selling for Dummies, here it is again, “Ironically, instead of getting more money…over pricing usually stigmatizes a property and reduces the eventual sales price to less than it would have been with more realistic pricing.” Just because the market is hot, don’t get greedy. Your home is beautiful and all, but you gotta play the game to get maximum price.

San Francisco Home Prices Remain High, affordability index stays low

What an interesting Summer! We are still in the midst of a hot real estate market where homes are getting quickly snatched up, buyers are stretching to pay over asking. The recent stock market gyration and Chinese currency devaluation add some uncertainty to the economy, and later this month the Fed is going to tell us where interest rates might go, but the San Francisco real estate market is steaming along.

The Housing Affordability Index (HAI), an index released periodically by the California Association of Realtors to measure the percentage of households that can afford to buy the median priced single family dwelling, shows all Bay Area counties saw declines in their affordability index reading, and San Francisco is now only 2 percentage points above its all-time low of 8%, last reached in Q3 2007.

The median house price, mortgage interest rates, and household income are the 3 major factors affecting the Housing Affordability Index. A picture is worth a thousand words, so here are the graphs:

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Interest rates play a huge role in affordability, and it is certainly reasonable to be concerned that affordability percentages are now hitting such depths while interest rates are also close to historic lows. For example, in 2007, when affordability percentages hit previous low points, prevailing mortgage interest rates were approximately 50% higher than today’s. When interest rates start to rise – when and how much being the real questions – there will be potentially dramatic effects on affordability, which could presumably affect demand and prices.

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As the HAI is approaching the record low, don’t hit the panic button yet. I’d like to show a unique perspective from John H Dolan, the sole market maker for the Case Shiller home price futures contracts that are traded (very infrequently) on the Chicago Mercantile Exchange.

San Francisco home prices have been rising sharply but how much higher might they run? Are they in a bubble? When, and how, will we know? Homeowners want to stay on top of expectations, while potential home buyers don’t want to see the market run away from them. While there may be many opinions, there is also one public market that home owners and buyers can access, to see what the market “thinks”.

The CME (Chicago Mercantile Exchange) has listed futures contracts for a number of the Case Shiller indices, including San Francisco (SFR), since 2006.^1 Essentially, the contracts allow participants to either view, or place a bet, on where the Case Shiller SFR index will be at various points over the next few years.^2 Since these housing contracts cash-settle on the value of the index in the settlement month (much like the S&P 500) it has been argued that traders may be “betting” on where they expect the index to be.^3 People can freely view the contract prices as a component of their own home price forecasts.^4

The graph below shows both the historical Case Shiller SFR index (in black), bids (blue axis), offers (red pluses), and contract closes (in purple). Finally contract values for Dec ’14 are shown in red.

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There are sets of 11 contracts (one for the Case Shiller 10-city index, and one for each of the ten components. San Francisco (SFR) is one of those ten.) While index levels react more slowly, and are backward looking, contract prices can change daily. While forward prices have been rising over the last few years on better-than-“expected” home price gains (at least as expected by this market), contract prices (particularly longer-dated expirations) have fallen this month.

While the SFR home price index has nearly doubled over the last five years (from a low of 117.42 in May 2009 to 214.53 this month), forward market prices are consistent with much more muted gains in 2016 and 2017. For example the 225.0 bid and 229.0 offer on the Nov ’16 contract are 4.9% and 6.7% above today’s level. The Nov ’17 contract is priced for an additional 4.3% gain the following year.

As such, expect headlines to note the slowdown in SFR home price appreciation (HPA) over the next year.

While contract prices for Nov ’16 and ’17 are higher than where they were at Dec ’14, they are off 4-5 points in the last few weeks as news of the Yuan devaluation and stock market gyrations have dampened expectations. The recent decline in prices is indicative that futures contracts are not predicators of the future, but reflective of expectations (that change as news occurs). That is, just as prices for oil futures dropped $50 in the last year as expectations changed, home price futures contracts also move.

In addition to just viewing bids and offers, those that either want to hedge an exposure (or future purchase), or who have a strongly different view of forward index levels can trade contracts to lock in forward prices. For example, someone thinking that SFR index levels will be lower by Nov 2016 might look at selling Nov ’16 contracts, while someone expecting another 10% annual gain might prefer to buy contracts.

Contracts have notional value of $250 * index price, so at a price of 225.0, the notional value is $56,250. A one point move in the futures price (e.g. from 225 to 226) is worth $250.

A trader would have to have a futures account, but the CME would be the legal counterparty to any trade. Margins tend to be less than 10% of the notional value.

As such, someone with a more bullish outlook in 2014, or someone looking to buy a house in 2015/16, could have (hypothetically) bought Nov ’16 SFR futures near 198 (mid-market price that day). With the contract 225 bid today, the buyer wouldíve made $6,750/contract

The contracts have been extremely thinly traded (e.g. there was only one SFR contract traded last month) so caution and patience are important. The markets are often quoted 1×1 (one contract bid/ one contract offered) so market orders for more than one contract are discouraged. The market-maker has expressed willingness to trade larger size, so best to contact him for larger orders.

Finally, contracts are traded on the SFR index which covers a wide area. Prices in any one neighborhood might diverge from the overall index levels. In addition, there’s (of course) no hedge for over-paying for a house.

Net, CME Case Shiller home price futures offer a useful tool for forecasters in framing their housing outlook. Unlike surveys, prices are continually updated, and traders are putting their money behind their bids and offers. The current thinness (limited trading) of the market suggests that CME prices might be one tool (but not the only) that homeowners can use to see what the market “thinks” about where home prices are headed.

1-For those new to home price indices, the Case Shiller index is the grand-daddy of home price indices. The indices were originally introduced in the early 1990’s by Nobel Laureate Robert Shiller and Carl Casein, and remain one the oldest that are currently being used. CS indices are often cited in news reports and in the financial press (e.g. CNBC). The CME has contracts for the Case-Shiller 10-city index (CUS) and, in addition to SFR, each of the other 9 components: (BOS, CHI, DEN, LAV, LAX, MIA, NYM,SDG, and WDC).

2- There are 11 expirations that today range from Nov 2015 to Nov 2019 (although some contracts do not often have posted prices).

3- Case Shiller indices are released on the last Tuesday of every month

4- e.g. Bloomberg

Big thanks to John H Dolan for the information, and new point of view! Visit HomePriceFutures.com for more analysis on home price derivatives.

That’s it. My head is spinning.