I had a chance to speak at the NEBA (Norteast Business and Economics Association) http://www.nbea.us/ conference this weekend to a number of finance professors. I pulled together this new graph to illustrate how bid/ask spreads in the CUSX16 (Nov ’16) contract have tightened over time, and shared some of the benefits of having one contract that part-time users (to include the press) can focus on 
for color (were they to advise on a new futures contract). The graph shows both the closing price of the CUSX16 contract and bids and offers (that I saved at some point during each day). It appears that the bid/ask spread has been inside 2 points at multiple times over the last few months. ( I like the graph so much that I’ve posted it to this’s site home page -for a while).
I think that this is a useful graph as it illustrates that (at least this part) of the housing contracts market has evolved (even over the last few months) to be a much tighter market than just a year ago. Tightening has occurred in a way that addresses the “chicken-and-egg” phenomenon. Trades have led to tighter spreads which have led to trades. Now what we need is some depth to this contract (and possibly Nov ’17 after Nov ’14 expires) to give potential new hedgers some sense that this market is more than 1×1.
In addition to having one benchmark security to talk about general trends in home price futures, tight bid/ask spreads can spill into earlier and later contracts via calendar spreads. (For example, the -7.0/-8.0 CUSX15_X16 calendar spreads leverages the tight CUSX16 market into a tight Nov ’15 market. In addition, a tight CUSX16 market has the potential to feed into other Nov ’16 regional markets via inter-city spreads (although I sense that might have to be an OTC market as I’ve not found a broker willing to post such spreads recently.)
So, even if you don’t have a view on CUSX15 or X17, and even if you don’t have a view on NYM, LAX or SFR Nov ’16 contracts, any help you can offer in supporting CUSX16 might spill over into tighter bid/ask spreads in those other markets.
As always, please feel free to contact me (johnhdolan@homepricefutures.com) if you’d like to discuss this blog or any other aspect of home price derivatives.
Finally, thanks again to Jonathan Reiss for stepping in to the market making role last week. Good efforts to include a trade!