Housing Prices Projected to Fall Through End of Decade

Includes: ICF, IYR, XHB
by: Bespoke Investment Group

From the CME Housing futures below, we highlight the expectations for median home prices in the ten cities that are traded. These contracts trade off of the S&P/Case-Shiller Home Price indices that we highlighted yesterday.

We took the prices of the forward contracts going out to November 2011 and tacked them onto the historical Case-Shiller data to paint a picture of what investors are expecting for home prices over the next few years. The blue lines below are actual home price data and the red lines are the prices of the futures. For each city, we highlight the percentage drop from the most recent home price data to the lowest priced futures contract.

As shown, home prices are expected to drop sharply from current levels, with San Francisco and Miami taking it the hardest. Chicago is expected to hold up the best, with expectations of only an 8% drop by 2010. The composite index of all ten cities is expected to fall another 13% from now to May 2010 and then finally stabilize. Based on where traders are putting their money, a bottom doesn't seem to be in store until the start of the next decade.

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