With half a month behind us, and now with all 121 contracts having some prices, it might be appropriate to spend a few minutes reviewing recent trends in price quotes for the CME Case Shiller futures. While there have been few trades, there has been some notable price changes.
The following two tables illustrate my notes contrasting recent market and month-end prices. (Three qualifiers-1) these are prices I observed, not necessarily CME quotes at any time, 2) the recent quotes may no longer be current, and 3) the first table is muddy due to my limitations in pasting Excel-generated work into WordPress. There is a higher resolution in the Reports section. Any help in teaching me how to better use WordPress would be appreciated).
Both tables show that there have been better offers in the longer-dated contracts, which has tended to reduce bid/ask spreads- particularly in the California contracts and the off-cycle (e.g. G15, K15, K16) contracts. The lower offers in the X16/X17 contracts are consistent with a switch in expectations of 10%HPA for the next four years, to a reversion to more “normal” home price appreciation. While bid/ask spreads for the front contracts (e.g. 2.8 for Nov ’13) are in-line with past expiration cycles, longer-dated bid/ask spreads remain historically wide (with the exception of CUS and NYM).
Net the price changes seem to be reflective of a willingness for traders to at least make some offers at some prices, which is a notable change from July-August when the markets reflected one-side bullish sentiment.
I would note, and will blog later, that prices in some of the longer-dated California contracts are a function of inter-city spreads. While IC spreads are always a great platform for debating relative strength of one region (or CUS 10-city) versus another (see the CUS/NYM debate in recent blogs), they are especially useful in today’s markets where one leg (e.g. CUS) has a very tight bid/ask spread, and by composition, is highly correlated with another market (e.g. LAX which is ~21% of the CUS index) that has a wide bid/ask spread.
Feel free to ask questions (johnhdolan@homepricefutures.com) and stay tuned for the next blog on examples of inter-city spreads.