I just got around to posting a recap of activity in the S&P Case Shiller (home price index) futures that are traded on the CME. (See Reports section or click here). Unfortunately it wasn’t large December volume, but other moving parts in life that kept me from getting to posting these numbers. My apologies to any waiting for results.
Dec. 31 turned out to be both the day that the October Case Shiller numbers were released, year-end, and the beginning of a long weekend for some, so quotes were not as tight as I would have liked. Recall that I used Dec 2 prices to overcome a similar problem with liquidity post-Thanksgiving. Even though (some) spreads have tightened dramatically since Dec 31, I decided to stick with Dec 31 quotes (so that others looking back could replicate this work, and true year-on-year comparisons could be made).
In addition to the Dec recap, I’ve updated (and posted to the Reports section) historical volume, open interest, and updated price change tables and a graph of all contracts.
The overall message from December is that activity plummeted. There were only 7 contracts traded (down from 68 in Oct and 23 in Nov) and bid/ask spreads widened. (As noted above, some of have come back sharply but my comments are as of Dec 31). In addition, I “sensed” a lower participation by other traders (w/ one exception that I’m aware of) as there were fewer instances of bids being “plused” or offers reduced. There were also more gaps in the 121 contracts that needed to be plugged (if a curve for all 11 contracts was to be maintained). I too, was guilty of lower involvement as my focus was elsewhere.
I attribute some portion (but not a majority) of the reduced participation to the CME decision (back in the early fall) to eliminate posting of CS futures prices on their website. Several readers complained about this decision as they said that they didn’t have the other resources (e.g. Bloomberg) to follow the market. While free trial Equote systems were offered, I imagine that those have expired. I can report that the new head of housing products at the CME is aware of the situation and has made good noises about addressing the issue. (I will blog the moment I hear any update).
Despite all of this news, the platform for trading housing contracts remains intact, spreads have tightened in 2014, and I can report continued interest (at least from the academic community, from my recent participation in the annual AEA (American Economic Association) conference. In addition, the contracts received a HUGE endorsement when Robert Shiller cited them in his Nobel Prize address in early December. I still believe that the CME is the best platform (today) for expressing a financial view on forward home prices.
With seasonal factors kicking in, and the pace of forward HPA (as implied by calendar spreads and surveys) dropping to 3.5-4.5%, the need for hedging would seem to be more important. Businesses (to include the Rent-to-Buy programs that have been such a large factor in driving selected regional home prices) should be having discussions about morphing their outlook from those of a “trade” to those of an ongoing business. That is, how can they demonstrate to their shareholders, banks and rating agencies that they’ve taken steps to protect against a sell-off in home prices. There are other businesses (e.g. to include builders) that I’d also be happy to talk to about hedging.
Over the near term I sense that I, and this market, could use help in three key areas: 1) repopulating calendar spreads to encourage debate about the pace of forward home price growth (or seasonal factors), 2) embracing inter-city spreads as a way to express a (potentially) lower risk opinion on relative moves in regional forward prices, and 3) using both to reign in 2018 bid/ask spreads. I am likely to be more focused on front, Nov ’14 and Nov ’16 contracts (which can be used as anchors for calendar spreads), certain key regions, and marketing.
I’m happy to tout (via blog, LinkedIn, or Twitter) any axes that traders want to share. Please contact me (johnhdolan@homepricefutures.com) if you have any questions or comments.
Happy New Year!
John