head scratcher

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    • Thu Sep 27th 20:18 PM | Rating: 0 0
      Commented on:
      Think Housing's Bad? You Ain't Seen Nothing Yet
      On second thoughts....
      they pay you 48x250x152=$1,824,000

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    • Thu Sep 27th 18:35 PM | Rating: 0 0
      Commented on:
      Think Housing's Bad? You Ain't Seen Nothing Yet
      oh, now i understand...
      1 unit = $250 * index value
      so in my example above, they pay you 0.48x250x152=$18240.
      (i'm assuming it's based on index value when future bought?)
      www.cme.com/trading/pr...
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    • Thu Sep 27th 18:11 PM | Rating: 0 0
      Commented on:
      Think Housing's Bad? You Ain't Seen Nothing Yet
      Thought provoking article. My thoughts are that the CME real estate futures are not liquid enough to support your results. There are almost no contracts beyond 12 months. The "last price" you refer to appears to be a kind of mid-point between the ask and bid prices (does anyone know where it comes from?).
      The "window" of % change in house prices is very large that far in the future. The "ask" price for 2011 San Francisco is 185, meaning that in 2001 someone is willing to sell a future where realestate in San Francisco is %185 of its jan 2000 real estate prices. The "bid" price is 152%, meaning that someone is willing to buy a future where realestate is %152 of its jan 2000 real estate price. If the latter is accepted, and San Francisco real estate ended up being 200%, the person who sold you that future must pay the difference i.e. they pay you 48% for each unit (1 unit = $250 ?). If you really think this is a bubble, then you can buy the 185% future now and you'll be rich (because the seller must pay you bubble prices when the bubble is gone)! If you think prices will increase to 300%, you can sell some futures to the %152 clown and he'll have to give you San Francisco real-estate at half price. It'll be interesting to see what happens if the 401k's start to diversify into this area. Can you imagine rebalancing your contributions with imaginary houses based on housing futures? I guess i find it strange that we have housing futures but no underlying "house" stock we can buy and sell now. Anyway, this is half speculation because no-one is actuallying buying/selling these futures. If it really was a bubble, wouldn't people be buying the 185% futures??
      i found the following article a comprehensive assesment of deriving house prices from market data
      www.federalreserve.gov...
      and its conclusions are based on the 3 "moments" of investor expectations
      1. Where are prices going
      2. how certain are we in 1.
      3. are the housing projections skewed to the downside implying a bubble?
      The conclusions based on more concrete statistics are
      1. prices will have a modest decline
      2. volatility of future contracts are high compared to historical trends i.e. there's a lot of uncertainty
      3. They analysed the futures of home building company equities to deduce that there is not a significant skew downwards. Only a modest bubble?
      View article »
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