Introduction to CME Housing Futures and...

Introduction to CME Housing Futures and Options 1 John W. Labuszewski, Managing Director Research & Product Development 312-466-7469, [email protected] The significance of a real estate futures contract stems from the sheer size of real estate as an asset class. Federal Reserve Flow of Funds data suggests that the value of residential real estate held by households and nonprofit organizations totaled $21.6 trillion2 by the conclusion of 2005, essentially on par with the $17.0 trillion held in domestic equities3 and $25.3 trillion in fixed income assets.4 As such, residential real estate represents perhaps one-third of the total value of these highly significant and visible asset classes. Unlike the markets for stocks and bonds, however, there is no liquid market or facile means of hedging the attendant real estate risk.

1 S&P/Case-Shiller® (CS) Home Price Indices are trademarks of Fiserv CSW Inc. (which with its affiliate MacroMarkets LLC [MSR]), sub-licensed for use by Chicago Mercantile Exchange Inc. By publishing the S&P/Case-Shiller® Home Price Indices and licensing its trademarks for use in connection therewith, MSR in no way implies a determination as to the legality, suitability or attractiveness of CME Housing Futures and Options for investment purposes. CME Housing Futures and Options are not listed, sold, or promoted by MSR. MSR MAKES NO WARRANTIES WHATSOEVER AND BEARS NO LIABILITY WITH RESPECT TO CME HOUSING FUTURES AND OPTIONS OR THE S&P/CASE-SHILLER INDICES ON WHICH THE PRODUCTS ARE BASED. 2 See Federal Reserve Statistical Release Z.1, Table B.100, Balance Sheet of Households and Nonprofit Organizations. This figure represents the market value of “[a]ll types of owner-occupied housing including farm houses and mobile homes, as well as second homes that are not rented, vacant homes for sale, and vacant land.” 3 See New York Stock Exchange (NYSE) Fact Book, “Global comparison of market capitalization of domestic listed companies.” 4 Estimates of The Bond Market Association.

Domestic residential real estate was valued at $21.6 trillion at the end of 2005 and comparable to the $17.0 trillion in stocks and $25.3 in fixed income securities.

CME Housing Futures and Options 2 Thus, Case, Shiller and Weiss articulated the concept of real estate futures in 1992 … “[f]utures and options markets should be established that are cash settled based on indices of real estate prices, and there should be separate markets for each of the major geographic regions … at present no real estate futures contract exists in the world; nor are there good substitutes for such markets.” 5

The introduction of futures and options based on the S&P/Case-Shiller® Home Price Indices (“S&P/CS Indices” or “the Indices”) on Chicago Mercantile Exchange (CME Housing futures & options) represents the fulfillment of that vision and an historic financial event, forging the creation of a novel derivatives asset class. CME Housing futures and options are designed to provide to provide a facile way for institutional and individual investors to gain exposure to real estate risk and effectively diversity their portfolios. Commercial and private asset holders are afforded an efficient hedging mechanism. In the process, this novel market may have the effect of reducing transaction costs for trading real estate.

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This document discusses current economic circumstances that lend impetus to this initiative; a discussion of the S&P/Case-Shiller® Home Price Indices, as published by Fiserv CSW Inc. (CSW), which serve as the subject of CME Housing futures and options; and, concludes with a review of the use and characteristics of CME Housing futures and options.

5 Case, Karl E., Shiller, Robert J., Weiss, Allan N. (1992), “Index-Based Futures and Options Markets in Real Estate,” Cowles Foundation Discussion Paper 1006.

Case, Shiller and Weiss explained the need, and established the model for, real estate futures in 1992.

CME is launching futures on the S&P/Case-Shiller® Home Price Indices to fill address the need for a hedging vehicle.

CME Housing Futures and Options 3 The Housing Boom

Certainly a driving force behind the development of CME Housing futures and options has been the “housing boom” of recent years. By the conclusion of 2004, the median value for a home across the United States was $190,000, representing an advance of 65.1% over the past five year period, according to date from the National Association of Realtors (NAR). The charge has been lead by housing prices on the west and east coasts. The median value of residential real estate in San Diego is at $556,000, up 138.3% in the past five years; median home values in Santa Barbara are at $445,000, up 147.9%; median home values in Jersey City are at $300,000, up 114.2%; median values in Miami at $240,000, up 106.1%. Even prices in the stolid Midwest are appreciating nicely with a median Minneapolis home priced at $225,000, up 63.2%.

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This has inspired much talk in the media and amongst the public that the U.S. housing market is experiencing a “bubble.” Accordingly, many express concern that this bubble may burst resulting in homeowner distress and financial uncertainties. Sharp and unanticipated declines in housing values are not unprecedented, noting that Los Angeles home prices fell 41% in real terms from 1989 to 1997, while on the opposite coast, Boston home values declined 29% between 1987 and 1994.

The impetus for the development of Housing futures has been the housing boom of the 21st century in which housing has rallied 65.1% over the past five years.

Many housing investors fear that the “bubble will burst,” with widespread financial distress.

CME Housing Futures and Options 4

Domestic Housing Price Activity

Metro Area 2004

Median Home Price

Change over Past

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Forecast Growth to

Jun-06 United States $190,000 65.1% 7.1%

New York/ Northern New Jersey/ Long Island/Conn

New York City $435,000 91.2% 12.6% Nassau/Suffolk, N.Y. $440,000 92.1% 11.6%

Newark $330,000 79.0% 11.4% Bergen/Passaic, N.J. $390,000 81.9% 11.3%

Middlesex/ Somerset/ Hunterdon, N.J. $318,000 87.4% 11.1%

Monmouth/Ocean, N.J. $328,000 97.0% 11.3% Jersey City $300,000 114.2% N.A.

New Haven/ Bridgeport/ Stamford/ Waterbury/ Danbury $335,000 69.7% 9.0%

Trenton $230,000 83.4% 11.0% LA/Riverside/Orange Co

Los Angeles/ Long Beach $442,000 122.3% 5.0% Riverside/ San Bernardino, CA $329,000 137.3% 4.5%

Orange County, CA $610,000 126.3% 6.8% Ventura, CA. $550,000 122.6% 5.8%

Chicago $254,000 49.6% 8.6% Washington/Baltimore

Washington $385,000 107.4% 13.9% Baltimore $140,000 85.3% 14.2%

SF/ Oakland/ San Jose Oakland $535,000 96.3% 13.3%

San Francisco $750,000 67.7% 13.6% San Jose $619,000 63.0% 13.9%

Vallejo/ Fairfield/Napa, Calif. $449,000 125.1% 13.8% Santa Rosa, Calif. $500,000 107.8% 13.2%

Santa Cruz/ Watsonville, Calif. $599,000 86.2% 13.0% Boston/ Worcester/ Lawrence/

Lowell/ Brockton $339,000 73.6% 8.0%

Dallas/Fort Worth Dallas $137,000 23.1% N.A.

Fort Worth/Arlington N.A. 23.5% N.A. Philadelphia/ Wilmington/

Atlantic City

Philadelphia $180,000 71.0% 11.7% Atlantic/Cape May, NJ $249,000 112.6% 9.4%

Detroit/Ann Arbor/Flint Detroit $160,000 24.3% 4.3%

Ann Arbor $225,000 28.1% 1.2%


Domestic Housing Price Activity, cont.

Metro Area 2004

Median Home Price

Change over Past

Five Years

Forecast Growth to

Jun-06 Houston $136,000 25.2% N.A. Atlanta $188,000 25.2% 6.4%

Miami/Fort Lauderdale Miami $240,000 106.1% 15.3%

Fort Lauderdale $257,000 105.8% 16.3% Phoenix/Mesa $190,000 53.1% 17.7%

Seattle/Tacoma/Bremerton Seattle/Bellevue/Everett $315,000 38.1% 9.1%

Tacoma, Wash. $212,000 36.9% 4.2% Minneapolis/St. Paul $225,000 63.2% 7.4%

Cleveland/Akron Cleveland/Lorain/Elyria $153,000 20.0% 4.3%

Akron $148,000 17.5% 0.7% San Diego $554,000 138.3% 5.9%

St. Louis $129,000 38.1% N.A. Tampa/St.

Petersburg/Clearwater $172,000 70.8% 14.7%

Pittsburgh $108,000 31.1% N.A. Denver $250,000 33.3% 6.0%

Cincinnati/Hamilton Cincinnati $172,000 18.9% 4.0%

Hamilton/Middletown, OH $182,000 20.5% 3.2% Portland, Ore./Vancouver $226,000 36.6% 9.8%

Sacramento/Yolo Sacramento $376,000 131.1% 17.1%

Yolo, CA $379,000 140.9% 17.4% Kansas City, MO $149,000 30.8% N.A.

Orlando $195,000 60.6% 14.3% Indianapolis $113,000 18.8% N.A. San Antonio $123,000 24.8% N.A.

Norfolk/Virginia Beach/Newport News $168,000 60.9% N.A.

Las Vegas $285,000 107.0% N.A. Columbus, OH $172,000 22.7% 3.7%

Milwaukee/ Waukesha $199,000 40.5% N.A. Charlotte/Gastonia/Rock Hill N.A. 19.1% N.A.

Salt Lake City/Ogden $155,000 -0.2% 0.0% Austin/San Marcos $151,000 24.9% N.A.

Nashville $139,000 19.3% 6.4% Providence/Warwick/Pawtucket $257,000 111.7% 17.7%

Raleigh/Durham $186,000 18.9% N.A. Hartford $228,000 54.1% 8.9%

Buffalo/Niagara Falls $95,000 27.00% N.A. Memphis $126,000 11.5% 3.2%

West Palm Beach/ Boca Raton $282,000 98.0% 21.0%


Domestic Housing Price Activity, cont.

Metro Area 2004

Median Home Price

Change over Past

Five Years

Forecast Growth to

Jun-06 Jacksonville FL $154,000 57.4% N.A.

Dayton/Springfield, OH $135,000 15.1% 0.3% Fresno $243,000 129.1% N.A. Tucson $179,000 46.6% 8.5%

Albuquerque $146,000 13.3% 1.4% Knoxville $121,000 27.3% 7.0%

Bakersfield, CA $195,000 114.1% N.A. Toledo $124,000 19.7% 0.6%

Youngstown/Warren, OH $90,000 15.0% 1.8% Springfield, MA $182,000 64.1% 10.5%

Sarasota/Bradenton $229,000 83.5% 17.0% Stockton/Lodi, CA $370,000 126.9% 21.8%

Daytona Beach, FL $153,000 79.9% 22.0% Lakeland/Winter Haven, FL $133,000 46.5% 9.8%

Johnson City/Kingsport/Bristol TN/VA $90,000 16.2% 4.8%

Lansing/East Lansing $134,000 33.0% 2.9% Modesto, CA $305,000 140.5% 15.2%

Fort Myers/Cape Coral, FL $124,000 92.1% 15.1% Canton/Massillon, OH $129,000 16.7% 2.2%

Salinas, CA $526,000 136.2% N.A. Santa Barbara/Santa Maria/

Lompoc $445,000 147.9% N.A.

Visalia/Tulare/Porterville, CA $190,000 86.1% N.A. Fort Pierce/Port St. Lucie, FL $280,000 99.8% 13.7%

New London/Norwich, CN $226,000 71.9% 6.3% Naples, FL $300,000 109.3% 22.4%

San Luis Obispo/ Atascadero/ Paso Robles CA $475,000 137.7% 11.3%

Merced, CA. $270,000 126.2% 16.6% Clarksville/Hopkinsville TN/KY $95,000 15.3% 4.2%

Chico/Paradise, CA $250,000 119.6% 15.2% Burlington VT $226,000 62.7% 7.8%

Barnstable/ Yarmouth MA $369,000 115.7% 5.6% Punta Gorda FL $154,000 98.1% 17.5%

Pittsfield MA $165,000 57.8% 11.1%

Sources: Fiserv CSW Inc., U.S. Census Bureau, U.S. Department of Housing and Development, National Association of Realtors

Housing Affordability - The current price surge reflects growing affordability driven by low long-term rates and income growth. Thirty-year fixed rate mortgages have fallen below 6%, the lowest rates seen at any time reaching back to the 1960s. Offsetting the decline in mortgage rates to a degree has been the continual advance in housing prices with the median single family home value in the United States breaking about the $200,000 barrier in April 2005. According to statistics from the National Association of Realtors (NAR), the median single family home value was $217,900 in July 2005.

The housing boom is driven by low mortgage rates and high income growth.

CME Housing Futures and Options 7 While home values have risen, and risen sharply in recent years, that has not been enough to offset the effect of falling mortgage rates and rising family incomes. Principal and interest payments (P&I) on a median single family home are reported at $1,015 per month or $12,180 annually by NAR. This represents just 21.3% of median family income of $57,313 as reported by NAR in July 2005. That figure has been generally declining over the course of the past 25 years from a high of 39.1% in November 1981 (when mortgage rates soared to 16.38%) to 17.0% in late 1998 (prior to the current “boom”), to 21.3% in July 2005. Note that these figures have been rising recently as a function of rising home values coupled with some indications that mortgage rates may have bottomed out now that the Federal Open Market Committee (FOMC) has pushed the Fed Fund target from its 2002 low of 1% up to 3.5% by mid September 2005.

Homes Prices vs. Mortgage Rates

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As such, the NAR’s Housing Affordability Index has been hovering at historically high levels over the past ten years and was most recently reported at 117.6 in July 2005. Note that any figure in excess of 100 suggests that the median household (earning $57,313) can afford to purchase a median single family home (valued at $217,900).

Housing had become very affordable by the turn of the century. Accordingly, home ownership rates have been rising nicely.


Median P&I vs. Household Incomes

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Homeownership rates have risen dramatically from a low of 63.8% in 1986 to a high of 69.0% in 2004. This figure is bolstered by the fact that many former renters have become empowered to purchase their own homes as a result of the affordability discussed above. Longer term home owners have been moving up to higher priced housing. Real estate speculation has likewise become a factor. Fannie Mae reports that investors are currently accounting for 12.2% of purchases in the conventional mortgage market compared to an average of 6.9% in 2002. These proportions are much higher in other venues, including Miami, where investors may be behind upwards to 70% of home purchases.

Affordability Index

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Housing Stock - Thus, house prices rose 12.5% while consumer prices rose 3.1% in 2004. House volume figures, whether measured by building permits, housing starts or housing completions have recently stabilized over the past year from mid 2004 to mid 2005 after rising to all-time highs.


Monthly Housing Activity

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House prices have concurrently surged to historic highs with Arizona, Nevada, Hawaii and California leading the way. Florida, District of Columbia, Maryland and Virginia likewise witnessed strong appreciation. Colorado, Ohio, Oklahoma, Indiana, and Texas showed the least appreciation. This also reflects a restricted supply of build-able land on U.S. coasts. In particular, and spurred on by the tech boom, coastal California housing took off as early as 1995 along with demand in other favorable climes. Home Finance Trends - Rising prices means that (eventually) home finance must become more difficult. Thus, buyers are seeking out ways to hold down monthly payments with the use of interest-only or adjustable rate mortgages. Lenders, faced with increased competition because of excess capacity, accommodate. Some buyers opt for the most lenient loan terms to acquire a larger home, and hope to profit more from further appreciation. Others leverage financial positions to acquire multiple homes. Recent banking practices have shifted price risk in inflated markets onto buyers and mortgage insurance companies. Where appreciation leads, lenders may require down payments of 20% or more for a margin of safety. Larger down payments may restrict first-time buyers as well. In San Diego, $110,000 matches an average 20% down payment. In Chicago (aligned with the U.S. average) or Cincinnati (below average), with a lower 10% down payment threshold, deposits become $26,000 or $23,000, respectively. Home industry forecasters predict 6% 30-year fixed mortgage rates by the conclusion of 2005 and 6-3/4% at the end of 2006. At 6%, national appreciation could slow. Rates of 8% and a regional industry contraction imply sharp coastal downturns while reduced rates in the 5% range imply more sustained price advances.

Some investors fear that mortgage rates may rise which could imply a downturn in housing prices.

CME Housing Futures and Options 10 Fed Concerns - Alan Greenspan, addressing a joint Congressional committee on June 9, 2005, stated, “…exceptionally low interest rates on ten-year Treasury notes, and hence on home mortgages, have been a major factor in the recent surge of homebuilding and home turnover, and especially in the steep climb in home prices. Although a ‘bubble’ in home prices for the nation as a whole does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets.” Similarly, Fed Governor Don Kohn has recently discussed imbalances in the U.S. economy with a specific focus on the housing market … “people should now be aware of risks in the real estate market … there is a role that monetary policy plays in reacting to these imbalances and this inevitable unwinding … By increasing the return to saving and dampening upward momentum in house prices, rising rates should induce an increase in the personal savings rate and thereby lessen one of the significant imbalances we have noted.” It appears that Mr. Kohn is advocating the use of monetary policy to induce a housing downturn and presumably encouraging less spending and more personal savings thereby. Certainly, the Fed’s focus on the housing sector is not unjustified. Indeed, it is estimated that the housing boom has generated over 800,000 new jobs in the homebuilding, real estate marketing and durable consumer goods sectors over the past three years. Still, the Fed’s tightening over the past year or two has done little to affect long-term fixed rate mortgages. While Fed Funds have risen from 1% to 3-½%, the long end of the yield curve has remained stable or even declined in terms of yield. Some even speak about the prospect of an inverting yield curve if the Fed should push short rates another 1 to 1-½% higher.

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It is unclear how far the Fed may have to hike rates before an appreciable effect may be observed with respect to long-term interest rates and by implication, housing affordability and housing prices. In the

The housing bubble has become a common topic of discussion and source of concern for Federal Reserve Chairman Alan Greenspan.

Federal Reserve monetary policy has been influenced by the housing bubble.

While the Fed has been on a course of measured tightening, the long-end of the yield curve and mortgage rates have generally not responded.

CME Housing Futures and Options 11 wake of Hurricane Katrina, economists are estimating 4th quarter 2005 Gross Domestic Product (GDP) in the vicinity of 2-3%. Unless GDP should advance much more dramatically than that, or the dollar should decline to the point where domestic capacity utilization should advance to 85%+, the new Fed Chairman may be unlikely to put a serious dent in the housing boom.

S&P/Case-Shiller® Home Price Indices

The S&P/Case-Shiller® Home Price Indices as published by Fiserv CSW Inc. (CSW) are widely recognized as the most reliable and authoritative measures of residential housing price movements for a variety of purposes, including loan portfolio due diligence, customer retention, loss reserve reviews, market surveillance, mortgage default, loss and prepayment analyses. The S&P/Case-Shiller® Home Price Indices represent market-specific time series designed accurately to track residential home values. Historical Overview – The development of the Indices was pioneered in the 1980s by CSW's research principals, Karl E. Case and Robert J. Shiller. In particular, Case and Shiller developed the repeat sales pricing technique, a methodology that is recognized as the most reliable means to measure housing price movement and a technique that has been applied by other most modern home price index publishers notably the Office of Federal Housing Enterprise Oversight (OFHEO). Case and Shiller were initially motivated by the sheer size and value of home equity in the United States and the impact it exerts on consumer behavior patterns. As suggested above, the value of residential real estate held by households and nonprofit organizations totaled $21.6 trillion at the end of 2005, rivaling the value of the domestic equity and fixed income markets. While the significance of the marketplace cannot be disputed, there simply were no truly accurate measures of home value movements available at the time. Accordingly, Case, Shiller Weiss, Inc. was founded in 1991 to provide a practical outlet for this work. The firm was subsequently acquired by Fiserv, Inc. in 2002 and now operates as Fiserv CSW, Inc. (CSW). In 2006, Standard & Poor’s (S&P) stepped in to rebrand the tradable indexes as the S&P/Case-Shiller® Home Price Indices. CSW is built upon a firm foundation of leading edge data collection, filtering, analysis, and modeling of home values. In the process of researching home values, the firm has accumulated an extensive nationwide database of residential real estate information. This data comprises the REdex Library™ of home pricing indices and related metrics, and CASA®, an automated property valuation service.

The S&P/Case-Shiller® Home Price Indices published by Fiserv CSW Inc. (CSW) are the most authoritative measures of housing prices available.

The S&P/Case-Shiller® Home Price Indices are created using the “repeat sale” or “same home resale” method of mining data.

CME Housing Futures and Options 12 Index Construction – The Indices are fundamentally based on observed changes in home values. In particular, CSW collects data regarding transactions on all residential properties during the time period in question. Next, CSW conducts a search of its accumulated database to find information regarding any previous sales for the same home. If this search is successful, this data point is examined in order to eliminate from consideration data points that might distort the calculations. Specifically, these transactions would include … non-arm's length transactions (e.g., the surnames of the seller and buyer match); foreclosure sales by mortgage lenders; transactions where the property type designation is changed (e.g., properties originally recorded as single family homes are subsequently recorded as condominiums); suspected data errors where the order of magnitude in values change dramatically. The sale pair is thereupon aggregated along with all other sales pairs found in a particular region to create the index. CSW utilizes both published and unpublished index calculation techniques created by Case, Shiller, and CSW's research staff to arrive at the index value.6 The Indices are established with a base value of 100.00 in the quarter ending March 2000 (the "base year").

The Indices are generated for geographic areas located across the entire United States and categorized on the basis of property type and price level. These geographic areas include U.S. Census Divisions, state, Metropolitan Statistical Area (MSA), counties and ZIP codes. The figures are produced on a quarterly basis and released near the

6 Sales pairs within a particular geographic area are statistically combined, creating a “price path” of all single-family homes in that area using an M-Index-Robust Interval- and Value-Weighted Arithmetic Repeat Sales Chain-After Base model to create a single home price index. The home need not be sold within one quarter to measure changing values in the current quarter. Rather, sales pairs spanning some time are referenced to estimate an index point for that period. Note that the value of individual homes may fluctuate for many reasons. For example, a home may be remodeled or abandoned and deteriorate with obvious implications with respect to value. These situations speak more to a change in the physical characteristics of the property than the change in market value. CSW addresses these concerns by weighting sales pairs utilizing proprietary software that weights changing home values based on their statistical distribution in that geographic region. Specifically, CSW employs an “M-Index-Robust Weighting” methodology where M is a reference to M-Estimate class. As a first cut, if a large change in the sales pair is observed relative to the statistical distribution of all area sales pairs, the suspect pair may be discounted or removed altogether from the sampling. Data related to homes that sell very frequently are excluded to the extent that historical and statistical data suggest that such sales are usually not at arms-length. Sales pairs are further weighted based on the period between the two sales dates (“Interval-Weighting”). When sales intervals are very long, it becomes more likely that a house may have experienced physical alteration and, therefore, longer interval pairs are discounted. Finally, each sales pair is assigned a weight equal to the first sale price (“Value-Weighting”). For more discussion regarding the repeat sales methodology, please refer to Shiller, Robert J. (1991) “Arithmetic Repeat Sales Price Estimators,” Journal of Housing Economics, 1, 110-126.

CME Housing Futures and Options 13 conclusion of the second month of each calendar quarter representing activity in the previous calendar quarter.

S&P/Case-Shiller® Home Price Indices

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Distinct indices are published for both single-family homes and condominiums. Further distinctions may be made, as permitted by specific market conditions, on the based of three price tiers: high-, moderate- and low-priced homes. Tiering is established at levels that represent approximately one-third of the housing stock within the geographic region being measured. The Indices may be accessed via CSW's index-based Portfolio Valuation Services. Database Quality Control – Quality data is the cornerstone of any index and CSW approaches the tasks of accumulating and screening raw data rigorously. Long-term contracts are maintained with multiple redundant sources to ensure access to data in all geographic regions. In the process, CSW has vastly expanded its library of data without compromising quality. CSW further filters the raw data per proprietary methodologies to ensure accuracy, given the sometimes uneven quality of data from various public databases. CSW meticulously scans its database for possible errors and cross-checks data from its multiple data suppliers. CSW standardizes residential home addresses per U.S. Postal Service specifications. Comparison to Other Housing Indices – The S&P/Case-Shiller® Home Price Indices are not the only housing price indices available. In addition, the National Association of REALTORS® (NAR) publish the NAR housing indices. Similarly, housing indices are published by the Office of Federal Enterprise Housing Oversight (OFHEO).


Los Angeles Housing Indexes

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The NAR indices are quoted in terms of median home values and, therefore, might not actually measure the potential investment return of homeowners. Median values may be deceptive and can be easily skewed if, for example, homes are remodeled or new luxury or low-cost housing is constructed in the area. Thus, there may be dramatic changes in the value of these indices which have little to do with the actual price fluctuations of homes. The Indices utilize a repeat sales methodology which is more robust and which speaks directly to homeowners’ wealth.

Correlation between S&P/CS vs. NAR and OFHEO Indices

1990-2000 2000-2004

NAR OFHEO NAR OFHEO Boston 0.771 0.922 0.627 0.680

Chicago 0.155 0.703 (0.106) 0.442 Denver 0.733 0.891 0.914 0.963

Las Vegas 0.525 0.414 0.990 0.974 Los Angeles 0.790 0.871 0.875 0.931

Miami 0.168 0.604 0.908 0.918 New York 0.834 0.757 0.165 0.372 San Diego 0.845 0.931 0.862 0.863 San Fran 0.806 0.871 0.955 0.851 Wash DC 0.081 0.490 0.702 0.944

United States 0.234 0.809 0.394 0.858 Average 0.571 0.745 0.689 0.794

Source: MacroMarkets LLC

The OFHEO indices utilize a repeat sales methodology applying the work of Case and Shiller. But they are based on a geometric, not an arithmetic average, which introduces certain biases to the data. Further, sampling is confined to Fannie and Freddie conforming mortgages and is therefore biased towards lower end rather than higher end housing.

S&P/CS Indices are more representative than the NAR or the OFHEO indices.

CME Housing Futures and Options 15 Note that only perhaps 1/6th of all California home sales conform. The Indices draw upon much larger sample sizes.

Further, OFHEO references appraisal data to supplement actual transactions. Because the Indices are not confined to conforming mortgages, they incorporate a wider sample and do not resort to use of appraisal data. Note that appraisal data is often biased on the high side. OFHEO indices typically undergo multiple adjustments and restatements because they are released two months after the conclusion of the quarter. A Unique Asset Class – Modern investment theory underscores the benefits of diversification. Residential real estate represents a rather unique asset class, the returns on which are distinguished from other major asset classes including stocks, bonds and even the value of Real Estate Investment Trusts (REITs).

Housing vs. Other Asset Values

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HousingBondsS&P 500REIT

The graphic above depicts the performance of the Case-Shiller nationwide aggregate index vs. stock performance represented by the Standard & Poor’s 500 (S&P 500); vs. the bond market represented by the Citigroup Total Return Corporate Bond Index; and, REITs represented by the Bloomberg REIT Index. (Note that these values were normalized at a value of 100.00 as of February 1995 for purposes of comparison.)

Housing as an asset class provides some unique benefits. Volatility is generally low relative to stocks and bonds and correlation is negative. Thus, housing provides diversification benefits.


Performance of Asset Classes (Feb 1995-Feb 2005)

Return Volatility

Housing 8.00% 1.44% Bonds 7.74% 2.25% Stocks 8.66% 7.13% REITs 6.61% 6.99%

During the 10-year period from February 1995 through February 2005, the returns on these four assets were actually remarkably similar. But, the four different asset classes achieved those returns in very different ways. In particular, housing experienced the least volatility of returns as suggested by the following table that measures volatility as the standard deviation of quarterly returns.

Correlation of Various Asset Classes

(Feb 1995-Feb 2005)

Housing Bonds Stocks REITs Housing -

Bonds -0.169 - Stocks -0.390 0.052 - REITs -0.074 0.177 0.153 -

It is also interesting to note that housing displayed a negative correlation with the other three asset classes over the past ten years as depicted in the table below. Accordingly, housing as an asset would imply some important benefits in terms of diversification.

Housing Futures and Options Chicago Mercantile Exchange (CME) is embarking on a bold new course by offering futures and option contracts based on the S&P/Case-Shiller® Home Price Indices as published by Fiserv CSW Inc. (CME Housing futures and options). Market Participants – The real estate asset class is different from the stock market asset class in that much of the real estate is held for use over very long intervals of time. Homeowners who expect to live in the same home for the rest of their lives, or businesses whose real estate holdings are very stable through time, may think that they do not need to hedge. In fact, however, there are substantial variations in the disposition of real estate assets through time that ought to generate hedging demand. Real estate futures are likely to hold immediate appeal to some home buyers to hedge their risks. Builders who have an inventory of homes to sell may want to hedge the inventory. Builders, who have a supply on

Likely users of CME Housing options include owners of real who wish to hedge against the possibility of price declines. Mortgage investors and insurers exposed to high loan-to-value ratios should find immediate application of futures and options.

CME Housing Futures and Options 17 the market, may also immediately want to offer some kind of value warranty to home buyers, who may be suddenly wary about buying in a market that appears possibly to be peaking, as an inducement to buy.

Other immediate users are holders of mortgage portfolios. Mortgage insurers currently hold a significant exposure to home prices since a sustained decline combined with high loan-to-value (LTV) ratios could result in dangerous levels of mortgage defaults. Government-sponsored entities (GSE’s), agencies, and other issuers of mortgages also would benefit from these markets in order to address the risk inherent in their portfolios. Without a futures market, a period of rising rates combined with general home price declines could be catastrophic for the issuers. An event that impacts the agencies themselves could create a crisis that cuts through the entire U.S. economy. Finally, investors at large will find CME Housing futures and options useful to provide exposure to a very important asset class without incurring the difficulties of actually executing real estate transactions. Economic Benefits – On a macroeconomic level, futures based on home prices may add stability to the economy by allowing institutions to hedge their exposure to home prices and diversify the potential impact of sustained declines in home prices. As articulated by Case, Shiller and Weiss …

“Nowhere in the world today are there markets that would allow investors to invest in a widely diversified portfolio of real estate without incurring enormous transaction costs. Since they cannot invest in a widely diversified portfolio of real estate, they cannot invest in a truly diversified portfolio at all. Thus, the presumed diversification that is supposed to be practiced by all investors according to modern financial theory just isn’t happening. “Nor are there markets that would allow individuals and institutions with large exposure to specific real estate risk to hedge these risks. Individuals for various reasons usually prefer to own their own homes, rather than rent them from institutions, and firms usually prefer to own real estate that they use in connection with their operations. But they cannot easily hedge the risk of these holdings. “In order to hedge their portfolio, these owners of real estate should sell real estate futures or buy put options that are closely correlated with the real estate that they live in or operate. At the same time, everyone should invest in a broad portfolio of real estate futures and options, which they can do by holding a portfolio of the opposite sides of the futures and options contracts that those who own real estate concentrated in a certain area undertake. “Thus, the long sides of any given futures or options contract should be taken by a wide spectrum of investors, presumably primarily

Housing futures and options have the potential to reduce the cost of doing business in the real estate markets.

Housing futures and options can provide convenient exposure to an important asset class without the difficulties attendant to an actual real estate transaction.


institutional, who invest in many futures contracts and options as a means of diversifying their portfolios; the short side should be taken by owners of region-specific real estate: individual homeowners, managers of rental properties, developers, corporation, and farmers.” 7

Further, it is possible and perhaps even likely that the availability of real estate futures may facilitate the introduction of a variety of risk management products that may be made available to individuals, such as home equity insurance or mortgages with guaranteed down payments. Institutions that offer such retail products will want to hedge their interests in futures markets. In fact, we might speculate that these institutions are unlikely to appear until futures markets are in place. We would expect that over a period of years after the introduction of real estate futures a substantial risk management industry will develop that will be intensive users of real estate futures. In the process, the costs associated with real estate transactions might be reduced on an institutional and on a retail level alike …

“The establishment of real estate futures and options contracts might be described as having the effect of spectacularly lowering transactions costs for trading real estate. The modern theory of the transaction costs (see for example Demsetz [1968], Akerlof [1970], Gammill and Perold [1989], and Gorton and Pennachi [1991]) stresses the importance of traders with superior or inside information: dealers must announce bid-asked spreads wide enough that they are not routinely ‘picked off’ by more informed traders. Baskets of corporate stocks and other financial assets are inherently subject to lower bid-asked spreads than are individual assets because there is less informed trading about the aggregates. The same would be true about the baskets of real estate on which the index is used to settle real estate futures and options contracts is based. Those who invest in real estate would be spared the concern that they are buying lemons, they can thereby forego the enormous costs and risks associated with buying individual properties.” 8

“Tradable Indices” – CME will list futures and options based on “tradable” S&P/Case-Shiller® Home Price Indices as opposed to the more comprehensive set of “standard” Case-Shiller Indices. The tradable S&P/Case-Shiller® Home Price Indices which shall be the subject of CME futures and options will be released on a monthly basis on the last Tuesday of the month. They reflect housing sale data from the quarter ending approximately 7 weeks before or an approximate 2-month “look-back” basis. E.g., the Indices released on the last Tuesday of February 2005 include data from October-November-December 2005; the Indices released on the last Tuesday of January 2006 include

7 Op. cit., Case, Shiller, Weiss. 8 Ibid.

CME Housing Futures and Options 19 date from September-October-November 2005. In other words, the Indices represent “rolling 3-month” snapshots of housing data. By contrast, the standard Case-Shiller Indices are released only on a quarterly basis representing the prior entire calendar quarter and are released near the end of the next calendar quarter on a 3-month look-back basis. Futures and options will be made available on tradable indices which represent matched sale prices for single family residential dwellings in ten (10) metropolitan statistical areas ("MSAs"). The 10 MSAs include Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco and Washington D.C. In addition, the Exchange will further list futures and options based upon a composite index of the ten MSAs. Note that the S&P/Case-Shiller® New York Home Price Index is not based on an MSA but, rather, represents a customized index that measures single family home values in select New York, New Jersey and Connecticut markets with significant populations that commonly commute to New York City for employment purposes. The S&P/Case-Shiller® Composite Home Price Index is a weighted average of the 10 MSA indices. Note that while the Indices are intended to be representative of all single family residential homes within the subject MSA, data for particular properties or component areas may be unavailable. Performance of individual properties or counties is not necessarily consistent with the MSA as a whole. County components are subject to change as a result of revisions by the U.S. Census Bureau or data insufficiencies.

CME will list futures and options based on 10 cities.

Futures and options will also be listed on the S&P/Case-Shiller® Composite Home Price Index, representing all 10 cities.


S&P/Case-Shiller® Home Price Indices Representation 9

Metro Area State/County Representation

Boston Massachusetts: Essex, Middlesex, Norfolk, Plymouth, Suffolk New Hampshire: Rockingham, Strafford

Chicago Illinois: Cook, DeKalb, DuPage, Grundy, Kane, Kendal McHenry, Will

Denver Colorado: Adams, Arapahoe, Broomfield, Clear Creek, Denver, Douglas, Elbert, Gilpin, Jefferson, Park

Las Vegas Nevada: Clark Los Angeles California: Los Angeles, Orange

Miami Florida: Broward, Miami-Dade, Palm Beach

New York

Connecticut: Fairfield, New Haven New Jersey: Bergen, Essex, Hudson, Hunterdon, Mercer, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, Union, Warren New York: Bronx, Dutchess, Kings, Nassau, New York, Orange, Putnam, Queens, Richmond, Rockland, Suffolk, Westchester Pennsylvania: Pike

San Diego California: San Diego

San Francisco California: Alameda, Contra Costa, Marin, San Francisco, San Mateo

Washington DC

District of Columbia Maryland: Calvert, Charles, Frederick, Montgomery, Prince Georges Virginia: Alexandria City, Arlington, Clarke, Fairfax, Fairfax City, Falls Church City, Fauquier, Fredericksburg City, Loudoun, Manassas City, Manassas Park City, Prince William, Spotsylvania, Stafford, Warren West Virginia: Jefferson

9 The composition of these metropolitan areas is largely based upon the most recent definitions established by the Office of Management and Budget in 2003. With the exceptions of Chicago (as composed above, OMB refers to as the Chicago “Metropolitan Division”) and New York (which is a variant of what OMB refers to as the New York “Combined Statistical Area”), these markets are consistent with what OMB refers to as the “Metropolitan Statistical Area” (MSA) of each city listed. Note that while the Indices are intended to be representative of all single family residential homes within the named metropolitan area, data for particular properties or component markets may be not always be available. Also, the historical price paths of individual properties or component markets are not necessarily consistent with their metropolitan area “parents”. The composition of the metropolitan areas represented in the Indices are subject to change in the event of transaction data insufficiency. Separately, it is possible that OMB will change their market area definitions in the future; in this event such OMB re-definitions occur, the Indices described here will not be re-composed.


CME Housing Futures & Options

Futures Options on Futures

Contract Size

Each contract shall be valued at $250 times the S&P/Case-Shiller® Home Price Index,

e.g., the value of the Los Angeles Index was reported at

264.78 in the 4th calendar quarter 2005, which equates to

a contract value of $66,195 (=$250 x 264.78)

One futures contract

Minimum Price Fluctuation 0.10 index points ($25.00) 0.05 index points ($12.50)

Trading Hours

Offered exclusively on CME® Globex® on Sundays-

Thursdays 5:00 p.m.-2:00 p.m. the next day

Traded via open outcry in CME Eurodollar options pit

Monday–Friday, 7:20 am–2:00 pm (central time)

Contract Months February Quarterly Cycle of February, May, August and November

Final Settlement Date

Trading in expiring contract ceases at 12:00 noon (central time) on last Tuesday of contract month

Cash Settlement

Cash settlement based on reported value of S&P/Case-

Shiller® Home Price Indices of home prices as published by

Fiserv CSW Inc. (CSW) for the cities of Boston, Chicago, Denver, Las Vegas, Los

Angeles, Miami, New York, San Diego, San Francisco,

Washington DC and an index that represents a composite of

the 10 cities

Exercised into the associated futures contract

Strike Prices NA At one (1) point intervals above

and below prevailing market price


Appendix: S&P/Case-Shiller® Home Price Indices Data

Boston Chicago Denver Las Vegas Los Angeles Miami New York San Diego San Francisco

Washington DC

Jan-90 72.76 68.50 47.98 75.46 100.23 79.20 80.89 83.77 72.87 92.99 Feb-90 72.28 68.06 48.08 75.14 100.15 79.48 80.53 84.08 72.95 93.18 Mar-90 71.19 68.68 48.29 76.08 100.02 79.30 79.99 84.43 73.50 93.02 Apr-90 70.91 69.43 48.40 76.77 99.99 79.24 79.34 85.09 74.57 93.22 May-90 70.42 69.97 48.40 77.59 99.79 79.33 79.05 85.53 75.12 93.01 Jun-90 70.14 70.62 48.75 78.34 100.24 79.78 78.96 86.01 75.15 92.95 Jul-90 69.84 71.23 48.84 79.53 100.05 80.03 78.78 86.02 74.81 92.81 Aug-90 69.56 71.48 48.99 80.95 99.99 80.11 78.21 85.86 74.45 92.35 Sep-90 69.30 71.61 48.98 81.64 99.26 79.94 77.41 85.76 74.24 91.81 Oct-90 68.72 70.99 48.86 82.41 98.66 79.67 76.80 85.32 73.44 91.48 Nov-90 67.36 70.73 48.78 81.85 97.36 79.75 76.14 84.98 72.58 91.08 Dec-90 66.13 70.08 48.53 81.78 96.54 79.41 75.60 83.93 71.47 90.74 Jan-91 64.97 70.04 48.67 80.96 95.28 79.08 74.59 83.13 71.17 89.38 Feb-91 64.17 70.50 48.68 81.58 94.12 78.55 73.69 81.87 70.27 88.80 Mar-91 63.57 70.63 48.85 81.65 92.83 78.44 72.87 80.89 69.56 87.59 Apr-91 63.35 71.09 49.20 81.67 92.83 78.55 72.29 80.73 69.46 87.56 May-91 63.84 71.36 49.51 82.02 93.37 77.95 72.63 81.41 70.13 88.61 Jun-91 64.25 71.66 50.09 81.91 94.25 78.49 73.50 82.20 70.83 89.28 Jul-91 64.49 72.16 50.55 83.35 94.85 78.64 74.39 82.59 71.39 89.57 Aug-91 64.79 72.62 50.86 84.07 95.21 79.56 74.90 82.47 71.52 89.13 Sep-91 64.83 72.59 50.90 85.46 94.92 79.27 75.06 82.20 71.55 88.82 Oct-91 64.71 72.43 50.99 83.81 94.51 79.31 75.01 82.02 71.21 88.62 Nov-91 64.05 72.23 51.03 81.98 93.67 79.29 74.84 81.76 70.69 88.75 Dec-91 63.69 72.45 51.08 82.87 93.01 79.09 74.74 81.14 70.05 88.29 Jan-92 63.18 72.71 51.25 82.85 92.45 79.10 74.59 80.48 69.67 88.25 Feb-92 62.94 73.19 51.94 83.09 91.97 78.51 74.38 79.87 69.48 87.75 Mar-92 62.97 73.51 52.83 82.66 90.97 78.60 74.27 79.98 69.17 87.97


Appendix: S&P/Case-Shiller® Home Price Indices Data, cont.


Washington DC

Apr-92 63.69 72.97 53.48 82.47 90.58 78.98 74.40 80.18 69.26 88.43 May-92 64.09 73.36 53.79 82.89 90.40 79.42 74.69 80.40 69.86 88.97 Jun-92 64.38 74.45 54.18 82.84 90.41 79.78 75.14 80.27 70.02 89.24 Jul-92 64.46 75.48 54.40 82.85 90.06 78.05 75.47 80.10 70.00 89.08 Aug-92 64.75 75.75 54.77 82.80 89.86 77.95 75.79 79.80 69.64 89.03 Sep-92 64.63 75.82 54.97 82.98 89.11 77.61 75.74 79.58 69.51 88.74 Oct-92 64.62 75.79 54.96 83.65 87.95 79.54 75.48 78.48 69.28 88.79 Nov-92 64.17 75.82 55.21 83.67 86.80 79.70 75.38 78.18 68.85 88.75 Dec-92 64.29 75.43 55.35 82.91 85.60 79.99 75.35 77.19 68.21 88.63 Jan-93 64.44 75.38 55.83 82.34 84.88 79.94 75.54 77.25 67.77 88.73 Feb-93 64.26 75.53 56.05 82.67 84.09 79.92 75.42 76.32 67.44 88.75 Mar-93 64.00 75.80 56.68 82.78 82.76 79.64 75.32 75.94 67.09 88.73 Apr-93 63.98 75.97 57.05 82.34 82.05 80.13 75.34 75.46 67.59 88.51 May-93 64.56 76.58 57.59 81.72 81.67 80.77 75.71 75.57 67.90 88.48 Jun-93 65.43 77.59 58.42 81.73 81.69 81.36 76.44 75.40 67.99 89.04 Jul-93 66.11 78.10 59.10 82.13 81.11 81.78 76.84 75.02 67.65 89.40 Aug-93 66.62 78.35 59.93 82.73 80.33 82.14 76.99 74.71 67.63 89.51 Sep-93 66.62 78.35 60.42 83.30 79.77 82.49 76.99 74.79 67.50 89.18 Oct-93 66.46 78.37 60.99 83.70 78.92 82.82 76.92 74.53 67.18 88.86 Nov-93 66.33 78.42 61.38 84.03 78.36 82.68 76.88 74.51 66.77 88.57 Dec-93 66.27 78.81 62.01 83.78 77.30 82.89 76.71 73.74 66.27 88.65 Jan-94 66.36 79.62 62.49 83.72 77.00 83.46 76.61 73.84 65.98 88.63 Feb-94 66.31 79.67 63.04 83.48 76.86 84.25 76.43 73.47 65.79 88.45 Mar-94 66.65 79.64 63.61 83.69 76.47 84.74 76.60 73.39 66.37 88.57 Apr-94 67.26 79.79 64.44 84.04 76.44 84.85 76.88 73.62 67.05 89.02 May-94 67.63 80.40 65.09 85.26 76.39 84.89 77.55 74.32 67.70 89.78 Jun-94 68.46 80.91 65.86 85.84 76.72 85.31 78.20 74.81 68.15 90.48 Jul-94 68.84 81.19 66.30 86.45 76.95 85.63 78.78 75.10 68.38 90.77




Washington DC

Aug-94 69.27 81.61 66.71 86.37 77.25 86.11 79.08 74.75 68.40 90.73 Sep-94 69.25 81.68 66.81 86.54 77.13 86.30 79.08 74.23 68.21 90.52 Oct-94 69.21 81.89 67.03 86.69 77.07 86.47 78.87 73.99 68.17 90.33 Nov-94 68.88 81.76 67.16 86.77 76.59 86.69 78.50 73.60 68.04 90.18 Dec-94 68.48 81.66 67.40 87.17 76.07 87.01 78.36 73.02 67.93 89.76 Jan-95 68.30 81.38 67.59 87.04 75.91 87.02 78.28 72.58 67.73 89.27 Feb-95 68.19 81.61 67.82 87.34 75.36 86.64 78.29 72.53 67.40 88.96 Mar-95 68.31 81.80 68.22 87.39 74.99 86.30 77.95 72.41 66.79 88.62 Apr-95 68.23 81.90 68.60 87.99 74.78 86.47 77.77 72.59 67.08 88.66 May-95 68.79 82.13 69.20 88.04 74.92 86.67 78.03 72.62 67.31 88.91 Jun-95 69.75 82.82 69.63 88.03 74.88 86.98 78.58 72.48 67.50 89.06 Jul-95 70.44 83.38 70.18 88.10 75.06 86.96 78.99 72.63 67.72 89.16 Aug-95 71.04 83.79 70.58 88.60 75.11 87.39 79.17 72.72 67.78 89.35 Sep-95 70.94 83.92 71.02 88.96 74.87 87.37 79.17 72.71 67.76 89.32 Oct-95 70.69 83.79 71.26 89.21 74.60 87.64 79.11 72.33 67.30 89.11 Nov-95 70.19 83.97 71.38 89.15 74.13 87.55 78.85 71.79 66.80 88.68 Dec-95 69.93 83.80 71.50 89.04 73.60 87.69 78.70 71.36 66.43 88.44 Jan-96 70.15 83.77 71.34 88.91 73.39 87.52 78.63 71.36 66.15 88.20 Feb-96 70.08 83.31 71.43 89.25 73.10 87.43 78.73 71.39 65.97 87.83 Mar-96 70.57 83.48 71.90 89.13 73.07 86.73 78.90 71.22 65.92 87.80 Apr-96 70.88 84.35 72.72 89.59 73.35 87.10 78.94 71.56 66.44 88.39 May-96 71.52 84.88 73.36 89.77 73.88 87.34 79.36 72.05 67.05 88.83 Jun-96 72.47 85.53 73.58 90.26 74.52 87.61 79.52 72.23 67.67 89.19 Jul-96 73.24 85.75 73.91 90.43 74.71 87.84 79.97 72.26 68.02 89.33 Aug-96 73.98 86.03 73.97 90.37 74.90 87.97 80.31 72.02 68.35 89.41 Sep-96 73.86 86.03 74.26 90.10 74.69 88.13 80.45 72.23 68.43 89.29 Oct-96 73.90 86.10 74.51 89.88 74.70 88.11 80.35 72.07 68.53 89.21 Nov-96 73.58 86.21 74.81 89.58 74.50 88.24 80.02 72.20 68.72 88.94 Dec-96 73.84 86.29 75.07 90.01 74.15 88.16 80.03 71.74 68.69 88.45




Washington DC

Jan-97 74.02 86.04 74.96 90.49 73.91 88.14 80.08 71.95 68.80 88.26 Feb-97 73.93 85.84 75.15 91.39 73.54 87.94 80.08 72.04 68.81 88.17 Mar-97 74.48 86.21 75.69 91.62 73.98 87.93 79.97 72.45 69.78 88.47 Apr-97 74.92 86.42 76.36 91.46 74.82 88.33 80.03 73.04 71.09 88.44 May-97 75.86 86.74 76.95 91.48 75.72 88.58 80.53 73.56 72.19 88.88 Jun-97 76.90 87.26 77.60 91.80 76.62 88.81 81.53 74.49 73.12 89.40 Jul-97 77.61 87.88 78.22 92.32 77.20 88.83 82.32 74.99 73.75 89.68 Aug-97 78.14 88.34 78.76 92.74 78.07 89.00 82.72 75.73 74.43 89.97 Sep-97 78.33 88.46 78.88 92.88 78.29 89.31 82.80 75.95 74.76 89.93 Oct-97 78.64 88.62 79.14 93.10 78.77 89.71 82.84 76.47 75.22 89.98 Nov-97 78.77 88.99 79.45 93.01 78.97 90.03 82.94 76.77 75.31 89.75 Dec-97 78.94 89.18 79.91 93.04 79.50 90.50 83.11 77.57 75.81 89.71 Jan-98 79.24 89.69 80.17 92.94 80.28 90.80 83.36 78.23 76.19 89.50 Feb-98 79.48 89.75 80.33 93.30 81.14 90.88 83.85 79.03 76.53 89.33 Mar-98 80.20 89.99 80.69 94.48 82.73 90.75 84.28 80.45 77.48 89.42 Apr-98 81.07 90.12 81.48 94.58 83.96 91.03 84.76 81.88 79.08 90.05 May-98 82.55 90.88 82.40 94.50 85.40 91.43 85.52 83.13 80.82 90.78 Jun-98 84.12 92.01 83.37 94.32 86.97 92.12 86.58 84.57 82.41 91.76 Jul-98 85.42 92.59 84.20 94.58 88.62 92.67 87.70 85.81 83.52 92.29 Aug-98 86.40 93.02 85.05 94.69 89.98 92.98 88.48 87.05 84.41 92.76 Sep-98 87.19 92.80 85.79 95.14 90.95 93.20 89.04 87.82 85.06 92.79 Oct-98 87.32 92.82 86.46 95.14 91.38 93.25 89.31 88.09 85.05 92.88 Nov-98 87.14 92.14 86.96 95.46 91.38 93.49 89.41 88.28 84.66 92.98 Dec-98 87.45 92.40 87.25 95.46 91.30 93.75 89.43 88.33 84.50 93.21 Jan-99 88.48 92.42 87.93 95.92 91.22 94.01 89.49 89.18 85.03 93.47 Feb-99 89.26 92.68 88.67 96.38 91.46 94.21 89.89 90.05 85.93 93.41 Mar-99 90.14 92.83 90.22 96.33 92.37 94.75 90.56 91.32 87.51 93.89 Apr-99 91.17 94.07 91.31 96.59 93.95 95.67 91.59 92.27 89.21 94.98 May-99 92.79 95.37 92.51 97.27 95.27 96.21 92.49 93.11 90.82 95.81




Washington DC

Jun-99 94.29 96.83 93.75 98.07 96.62 96.18 94.07 94.65 92.52 97.09 Jul-99 96.08 97.51 94.92 98.58 97.49 96.79 95.47 95.71 94.20 98.15 Aug-99 97.27 98.11 96.14 98.53 98.30 97.32 96.88 96.88 95.14 99.15 Sep-99 98.33 98.31 97.62 99.03 98.63 98.01 97.67 97.77 96.15 99.58 Oct-99 99.13 98.97 98.54 99.34 98.99 98.05 98.24 98.55 96.72 99.53 Nov-99 99.67 99.38 99.06 99.78 99.34 98.68 98.59 99.19 97.87 99.39 Dec-99 100.01 99.84 99.42 99.69 99.79 99.52 99.28 99.47 98.90 99.73 Jan-00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Feb-00 100.36 100.52 100.73 100.33 100.62 100.21 100.54 101.07 102.70 100.53 Mar-00 101.31 101.53 101.99 100.90 102.13 100.74 101.27 103.26 106.56 101.70 Apr-00 103.27 102.78 103.07 101.20 103.70 101.83 102.41 105.42 110.97 103.34 May-00 105.85 104.38 105.26 101.93 104.99 102.81 104.35 107.15 115.01 104.91 Jun-00 108.48 106.08 107.32 102.44 106.36 103.49 106.00 109.64 118.45 106.29 Jul-00 110.00 107.01 108.93 103.14 107.23 103.67 107.52 111.21 119.48 107.72 Aug-00 111.38 107.39 110.00 103.73 108.18 104.37 108.90 112.84 119.95 109.10 Sep-00 112.67 107.30 111.35 104.51 108.94 105.23 109.76 113.66 120.94 110.18 Oct-00 114.11 107.29 112.33 105.16 109.56 106.25 110.51 114.22 123.08 110.50 Nov-00 115.36 107.43 113.35 105.34 110.12 107.56 110.89 115.49 125.66 110.99 Dec-00 116.56 107.86 114.24 105.36 110.12 108.89 111.87 116.32 128.58 111.96 Jan-01 117.67 108.35 114.75 105.23 110.88 110.28 112.66 117.54 131.16 112.73 Feb-01 118.51 108.63 115.79 105.39 111.32 110.76 113.51 118.46 133.27 113.99 Mar-01 119.94 109.38 116.33 106.21 112.98 111.94 114.48 121.19 134.10 115.40 Apr-01 121.54 110.63 117.95 107.40 114.12 113.32 115.60 122.93 134.38 117.90 May-01 123.11 112.12 119.20 108.56 115.31 114.84 116.38 124.30 134.09 119.30 Jun-01 125.12 113.79 120.45 109.76 116.47 115.97 117.90 125.28 132.64 120.93 Jul-01 126.76 115.20 121.12 110.93 117.36 117.08 119.66 126.34 130.95 122.31 Aug-01 128.26 116.19 121.78 111.74 118.67 118.30 121.41 127.19 129.15 123.61 Sep-01 129.62 116.69 122.41 112.54 119.51 119.67 122.91 128.19 128.60 124.50




Washington DC

Oct-01 130.51 116.82 122.36 112.73 120.16 121.32 123.86 129.14 128.01 124.87 Nov-01 130.94 116.77 121.93 113.30 120.48 122.89 124.74 129.71 126.99 124.93 Dec-01 130.06 116.88 121.32 113.32 120.65 124.02 124.72 129.31 125.47 125.65 Jan-02 129.93 116.96 121.30 113.70 121.45 124.52 125.19 128.79 125.13 125.99 Feb-02 129.63 117.29 121.21 113.96 122.26 125.06 125.40 129.82 126.06 127.19 Mar-02 131.21 117.66 122.05 114.32 124.12 126.35 126.50 131.76 128.79 128.47 Apr-02 133.34 118.97 122.70 114.72 126.23 127.84 127.93 135.04 132.62 130.78 May-02 136.76 120.38 123.95 115.63 128.73 129.83 129.89 138.14 136.07 133.40 Jun-02 139.56 121.56 124.75 116.70 131.59 131.59 132.20 141.41 139.35 135.67 Jul-02 141.77 122.77 125.46 117.61 133.97 133.39 135.18 144.15 141.02 138.48 Aug-02 143.66 123.49 125.55 118.34 136.59 134.91 137.74 147.25 141.93 140.68 Sep-02 145.85 124.07 125.66 118.91 138.62 136.76 139.69 149.54 142.29 142.39 Oct-02 147.43 124.66 125.69 119.98 140.76 138.62 141.58 151.87 142.74 143.30 Nov-02 148.33 125.38 125.84 120.93 142.07 140.09 143.29 153.58 143.06 143.77 Dec-02 147.28 126.27 125.41 121.73 143.26 141.98 145.20 154.43 142.40 144.96 Jan-03 146.79 126.77 124.81 121.94 144.27 143.78 146.55 155.40 141.90 145.19 Feb-03 147.18 127.48 124.33 122.46 145.30 145.46 147.30 156.17 142.19 146.01 Mar-03 148.99 128.26 124.87 122.94 147.23 147.09 148.38 157.75 143.00 146.75 Apr-03 150.42 129.05 125.17 124.46 149.65 148.36 149.53 160.23 144.69 148.92 May-03 152.15 130.52 125.67 125.68 152.27 149.75 150.88 162.55 145.53 151.53 Jun-03 153.30 131.43 125.61 127.38 154.98 150.67 151.86 165.26 146.53 154.00 Jul-03 154.21 132.50 126.07 129.30 158.34 152.65 153.50 167.98 147.75 156.47 Aug-03 154.97 133.01 126.72 131.85 161.89 155.07 155.14 171.27 148.72 158.70 Sep-03 156.38 133.94 126.94 134.16 165.29 157.28 157.10 175.03 150.25 161.01 Oct-03 157.63 134.87 127.05 136.77 168.40 159.59 158.73 178.70 151.75 162.65 Nov-03 158.63 135.91 127.08 139.16 171.11 161.11 160.59 181.79 153.36 164.14 Dec-03 158.58 137.09 126.98 142.69 173.98 162.93 162.31 184.11 154.62 165.79 Jan-04 158.56 137.67 127.20 145.93 177.01 164.84 163.61 186.33 155.93 167.78 Feb-04 159.18 138.11 127.21 149.93 180.49 166.67 164.91 189.89 158.11 169.50




Washington DC

Mar-04 160.70 138.09 127.73 157.91 186.56 169.99 166.58 196.40 160.90 172.29 Apr-04 163.89 139.29 128.34 166.32 193.22 172.60 168.20 203.64 164.65 176.62 May-04 166.25 141.31 129.12 175.00 199.59 176.40 170.19 210.94 167.76 182.19 Jun-04 168.39 142.61 130.45 185.56 206.38 179.64 172.56 218.18 171.51 188.01 Jul-04 169.44 143.98 131.10 195.01 211.07 183.12 175.28 224.22 173.85 192.08 Aug-04 170.51 144.79 131.83 201.67 213.49 186.78 177.50 227.68 175.89 195.39 Sep-04 171.77 146.06 131.87 205.47 215.08 190.69 179.32 230.65 178.14 198.24 Oct-04 173.60 146.91 132.17 207.12 215.74 194.30 181.58 232.29 180.73 200.79 Nov-04 173.94 147.87 132.15 207.54 216.57 197.64 183.47 232.63 183.14 203.30 Dec-04 173.63 148.86 132.40 207.67 217.33 201.37 185.10 233.08 185.73 206.05 Jan-05 173.67 149.70 132.33 207.38 219.40 205.42 187.23 233.78 189.35 208.64 Feb-05 175.02 151.00 132.63 209.27 222.29 209.55 189.30 235.64 193.50 212.26 Mar-05 177.01 151.82 132.71 210.97 226.76 215.49 192.15 236.56 198.27 217.88 Apr-05 179.06 153.27 133.83 214.49 231.59 221.62 194.06 239.59 201.84 224.09 May-05 181.22 154.72 134.80 217.25 236.67 227.11 195.90 242.00 205.50 229.86 Jun-05 181.29 156.17 135.71 219.85 241.69 233.44 197.70 245.35 208.92 235.36 Jul-05 181.86 157.39 136.46 221.93 246.37 238.99 199.77 247.32 211.55 239.50 Aug-05 181.63 157.81 137.19 224.56 251.10 245.22 202.15 248.44 212.86 242.07 Sep-05 182.42 159.31 137.60 226.63 255.84 251.19 204.34 249.01 214.73 244.12 Oct-05 182.04 160.46 137.69 227.93 260.15 256.97 206.91 249.79 215.55 245.46 Nov-05 181.66 162.47 137.53 228.86 262.57 260.85 209.24 250.34 215.71 246.71 Dec-05 179.41 163.19 137.50 229.47 264.78 265.05 211.22 248.55 215.18 247.26

NOTE: S&P/Case-Shiller® Home Price Indices for the ten (10) cities are released monthly on the last Tuesday of the month and reflect housing sale data from

the quarter ending approximately 7 weeks before. E.g., the Indices labeled here as “December 2005” include data from October-November-December 2005 and would be released on the last Tuesday of Feburary 2005. The November 2005 Indices include data from September-October-November 2005 and would be

released on the last Tuesday of January 2006.

Introduction to CME Housing Futures and...

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