Housing Futures: Traders Bet on Lower Prices Through 2011

Orange County Register reports:

Commodity traders have a new toy: long-term bets on house prices. And the initial results (analysis from admittedly light trading at Chicago’s Merc) aren’t pretty for homeowners. According to TFS Derivatives of New York, traders’ actions translate to a bet that home prices in LA and Orange counties will fall by 15.4% by November 2011. That’s an average annual loss of 3.7% over the next four years. The drop, if traders’ bets are correct, would go like this: lose 2.3% by this November; a collective loss of 8.9% from today through Nov. ‘08; a collective loss of 12.9% through Nov. ‘09; and down 13.9% through Nov. ‘10.

We are NOT alone. Here’s how other regional housing indexes would fare, through Nov. ‘11, if traders’ initial bets are correct …
Miami, down 29.1% through 2011
San Francisco, down 26.2%
USA (10 cities), down 23.2%
DC, down 20.7%
Vegas, down 19.5%
San Diego, down 19.2%
Denver, down 19.2%
New York, down 18.3%
Boston, down 17.7%
Chicago, down 10.8%

Fritz Siebel of TFS says the downtrend is confirmed by similar weak trading data from another housing derivative known as Radar Logic. As for the Chicago Merc data, he says: “Although liquidity is low, the pricing direction clearly indicates price declines … There is little housing price support appearing on the (Chicago Merc) markets this week.”

Something to think about.