CME Housing Futures

[1011101]

I tried many contracts, including that one and got the same message.

Also, what are the margin requirements for these futures at ib? I could not find it on the website.

 

[def]

Quote from 1011101:

I tried many contracts, including that one and got the same message.

Also, what are the margin requirements for these futures at ib? I could not find it on the website.

In that case, you should probably contact customer service say they can look into your specific case as I just placed another order without a problem. margin is roughly 1700 per contract initial overnight w/ 1280 maintenance.

 

[luh3417]

Are you guys on the long or short side of those futures? Anyone trade the options-on-futures? I read that these contracts are not very liquid.

 

[thenewguy]

Wow, I went to the CME site to look at the index methodology of the housing futures and here is what I found:

The S&P/Case-Shiller Metro Area Home Price Indices use the “repeat sales method”
of index calculation – an approach that is widely recognized as the premier
methodology for indexing housing prices – which uses data on properties that have
sold at least twice, in order to capture the true appreciated value of each specific sales
unit.

... and...

To be eligible for inclusion in the indices, a house must be a single-family dwelling.
Condominiums and co-ops are specifically excluded. Houses included in the indices
must also have two or more recorded arms-length sale transactions. As a result, new
construction is excluded.

Now, I'm not too bright, but excluding new construction (current developers) and excluding condo's and co-ops (mostly retail speculators) combined with a very serious lag (two or more sales to be included???) doesn't make a whole lot of sense to me. I was actually going expecting to find that Pabst was overreacting a bit, but now I realize he was very, very right! Is there something I'm missing, or is this as bad as it sounds???

TNG

 

[luh3417]

I think they just mean two or more sales ever historically. So I don't see a lag here.

These guys have probably got more statistics and econometrics background than we do. They've been thinking about this for years. Why would it be in their interest to create a lame index?

 

[thenewguy]

Quote from luh3417:

I think they just mean two or more sales ever historically. So I don't see a lag here.

These guys have probably got more statistics and econometrics background than we do. They've been thinking about this for years. Why would it be in their interest to create a lame index?

Cuz they can sell it to lame customers? :eek:

How often is a house sold twice in the same month, year or even decade? (well, maybe twice a decade, I really don't know). So they are taking the first price sale - the second sale to determine the appreciation of the time difference between the sale, I assume. How can there not be lag in an index that's based on a 10/5/3 year average? What kind of hedge is that?

I dunno, I really don't know much about housing, but it all just seems a bit odd to me.

TNG

 

[guy2]

There's no lag because the index uses houses that sold that month and compares those sales against their previous sales. It's actually a very well constructed index. You should watch the video presentations on the CME site and the Q&A with them.

 

[thenewguy]

Quote from guy2:

There's no lag because the index uses houses that sold that month and compares those sales against their previous sales. It's actually a very well constructed index. You should watch the video presentations on the CME site and the Q&A with them.

I still don't get it. When were the previous sales? If the previous sale was thirty years ago and the difference is %10, how do you know if the %10 was a steady incline over the thirty years, or the house lost value for 29 years and had a phenomenal year that year?

Essentially what you have is the average appreciation/depreciation of housing values over the average of the time between sales. I am making an assumption here, but how frequent can those sales be? Anything less than a year would have to be massively lagged, no?

I'm gonna make some popcorn now and watch those videos... thanks.

TNG

 

[thenewguy]

They also don't include houses that had two transactions in the last 6 months. I guess I'm looking at this the wrong way. It's not supposed to be like an equity index, it's supposed to be a long term hedging vehicle?

I still don't see how that's useful to institutions. I guess we'll have to see how well they are accepted.

TNG

 

[guy2]

You probably already have the answer if you've watched the videos but if not think of it as follows:

This month's index is made up of 30 house sales. Each house was previously sold in increments of 1 year ago. i.e. 30 sales from 1 to 30 years ago. Now do you see how they do it?