A Future Look at Real Estate Futures

by | Aug 13, 2022 | Saul's Insights | 0 comments

Real Estate Futures, in our Future

I am fortunate to be on the Places Platform Team with John Dolan. It seems like I have learned more in the last 3 years than in the 40 years before that!Among other things, John is the Market maker in CME Case Shiller home price futures & options.

John takes it to the next level.

John Dolan• 2ndCounterparty at Home Price Hedging Fund, LLC

I’ve teed up a blog bit.ly/SFR_MIA that describes two ways to see clearing levels for risk transfer of city vs national home price basis risk. One is the CME Intercity Spread market (“IC”) which has the benefit of CME as counterparty on fungible products. The second is HPHF OTC Ratio Agreements (“RA”).

The benefits of RAs include that one can see the historical performance of one region vs. a more national index over time, and that forward HPHF quotes reflect the direction and magnitude of proposals on risk-clearing levels.

As with futures, the RAs have imbedded some sense of forward expectations. So (looking at the graph below) SFR is priced consistent with underperformance vs the 10-city index (despite historical upward trend), while MIA is priced for out-performance.

A second benefit is that RAs on other Top 50 cities not referenced by CME futures can be structured.

Please feel free to DM me if you have questions about the attached blog, or if you’d like to see a proposal on an RA for another city.

Thanks, John

a close up of a chart with text


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