Futures and the Housing Market: A Look at Case-Shiller

June 2, 2016 11:33AM CDT

Karl Case and Robert Shiller developed an economic approach into calculating data on repeat sales of single family homes. Their team calculated the home price index back to 1890 and gave it a value of 100. It is updated quarterly. There are multiple Case-Shiller home price indices: a national home price index, a 20-city composite index, a 10-city composite index and twenty individual metro area indices. These indices are calculated monthly by Standard and Poor, with data points calculated for the time period of January 1987 through today.

Contrary to popular belief, there has been no continuous uptrend in home prices in the United States. Moreover, Robert Shiller illustrates how the pattern of changes in home prices bear no relation to changes in construction costs, interest rates or population movement. He further states there is a strong perception across the globe that home prices are continuously increasing and that this kind of sentiment may be fueling bubbles in real estate markets. Shiller says since homes are relatively infrequent purchases, people tend to remember the purchase price of a home for a long time and are surprised at the difference between then and now. Most of the differences in price can be explained by inflation. Since people consistently overestimate the appreciation of the value of their homes, showing an appreciation of 2% per year, Shiller notes the actual increase is 0.7%!

RJO Futures | 222 South Riverside Plaza, Suite 1200 | Chicago, Illinois 60606 | United States
800.441.1616 | 312.373.5478

The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that RJO Futures believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgement at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

Distribution in some jurisdictions may be prohibited or restricted by law. Persons in possession of this communication indirectly should inform themselves about and observe any such prohibition or restrictions. To the extent that you have received this communication indirectly and solicitations are prohibited in your jurisdiction with registration, the market commentary in this communication should not be considered a solicitation.