Are there Investable Real Estate Indices which track Geographical Locations?

Question

At one time there were the Shiller Case indices. I don't know if they are around anymore

Answer 1

1. Are there real-estate indices which track geographical location?

Yes. S&P/ Case-Shiller real-estate indices are available, as a single national index as well as multiple regional geographic indices. These indices are updated on the last Tuesday of every month. According to the Case-Shiller Index Methodology documentation:

Their purpose is to measure the average change in home prices in 20 major metropolitan areas... and three price tiers– low, middle and high.

The regional indices use 3-month moving averages, published with a two-month lag. This helps offset delays due to "clumping" in the flow of sales price data from county deed recorders. It also assures sufficient sample sizes.

Regional Case-Shiller real-estate indices

* Source: Case-Shiller Real-estate Index FAQ.

The S&P Case-Shiller webpage has links to historical studies and commentary by Yale University Professor Shiller. Housing Views posts news and analysis for the regional indices.

2. Can I invest in real-estate indices?

Yes. The CME Group in Chicago runs a real-estate futures market.

Regional S&P/ Case-Schiller index futures and options are the first [security type] for managing U.S. housing risk. They provide protection, or profit, in up or down markets. They extend to the housing industry the same tools, for risk management and investment, available for agriculture and finance.

But would you want to invest? Probably not. This market has minimal activity. For the three markets, San Diego, Boston and Los Angeles on 28 November 2011, there was zero trading volume (prices unchanged), no trades settled, no open interest, see far right, partially cut off in image below. * Source: Futures and options activity[PDF] for all 20 regional indices.

I don't know the reason for this situation. A few guesses:

• Some new futures products just don't take off.
• Current economic uncertainty and elevated risk is discouraging traders from entering a new market, one with no prior history.
• In time, the real-estate futures market will get active. CME introduced the indices, with encouragement from Professor Shiller, several years ago. CME seems committed to wait this out.

Additional reference: CME spec's for index futures and options contracts.

Answer 2

Not to my knowledge. Often the specific location is diversified out of the fund because each major building company or real estate company attempts to diversify risk by spreading it over multiple geographical locations.

Also, buyers of these smaller portfolios will again diversify by creating a larger fund to sell to the general public.

That being said, you can sometimes drill down to the specific assets held by a real estate fund. That takes a lot of work:

1. identify the contents of the fund,
2. review the transfer paperwork to find the companies they they purchased the assets from
3. review that specific company (or companies) to find their geographical location and if they have sold some of their assets recently.

You can also look for the issuer of the bond that the construction or real estate company issued to find out if it is region specific.

Hope that helps.