October 15, 2009

The report, released last week is another green shoot pushing upwards. Home prices in the U.S., as measured by the S&P Case-Shiller home price indexes, rose in July over the previous month, as 18 of the 20 metropolitan areas comprising the benchmark saw saw a boost to real estate values. For the 16th consecutive month, every region saw year-over-year declines, but the pace of those declines continues to decelerate, according to the Wall Street Journal. The ten-city index is down 33.5% from its mid-2006 high, while the 20-city index has declined 32.6%.

Confirming the stats market shares built to be reflective of moves in home prices acted as they should. These market tools are investments in their own right, but they are also trend confirming tools. MacroShares Major Metro Housing Up Trust (UMM) and Major Metro Housing Down Trust (DMM). In relatively heavy trading Tuesday morning, UMM had gained more than 3%, while DMM was down by about the same amount.

Since their inception in June of this year, UMM has jumped by nearly 35%, while DMM is down nearly 25%. Recently, DMM was trading at a discount to its net asset value of about 17%, while UMM was trading at a 24% premium. While such large spreads would be alarming for most exchange-traded products, in this case it simply reflects investor expectations for the U.S. housing market (specifically, that home prices will continue to rise over the next five years).

If you look at the price action of the UMM vs the DMM, you can see investor perception that homes will continue to rise. Looking at the Dow REIT index, you see similar strong moves to the upside. Personally, I think the markets are ahead of themselves but they are a strong confirmation that people are beginning to look past the bust and are betting on the future.


Yes. We have the commercial recasts and the option ARMs to get through. The markets enthusiasm is emotional, we raised the flag because we avoided a great depression, but now thee is more reality to face. The good news, The Economist made an observation I loved. American is brilliant at fixing itself.

Thanks for Reading

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