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Recap of activity in CME Case Shiller futures for July

I just posted an 18-page recap of (the very limited) activity in the CME Case Shiller futures for the month of July. There are pages with tables of recent outright prices, and price changes, calendar and intercity spread quotes, indicative option prices, and volume and open interest (OI) figures. The recap can be found in the Reports section (along with some background material and historical reports) or can be linked here.

The key points from July report include:

–There were 5 futures contracts traded in July in 2 regions (DEN and SFR) across 3 expirations. (4 of the 5 trades were in SFR contracts). Volume has been very low for the last 12 months, but with more commentary on social media about a bubble, and ever-tighter bid/ask spreads, I remain optimistic that trading volume will increase dramatically.

– There were no options trades. The recap has a page showing where I’d be open to buying/selling puts on one-year forward, at-the money strikes (but recall that any options -both puts and calls -can be arranged for any region, for any expiration, on any 5-point interval). I’d be happy to respond to any option inquiry and/or to tout any “trading axe” that a reader wants to share.

–Despite low volume, activity (third parties bidding and offering) picked up, especially in SFR. The SFRX22 contract had at least 3 parties bidding and offering, and was quoted much of the month with <3 point bid/ask spread.

–For July, bids and offers were higher across many regions (except DEN, NYM, and SDG).

–There were 2-sided quotes in all 121 contracts, for most of July. While most quotes are 1×1 (one lot bid vs one lot offered), I’m open to facilitating retail-sized inquiries (up to 10 lots) in any contract. (A benefit of two-side trades is the resulting graphs showing YOY implied price changes). I’m preparing a blog for later this week detailing observations on forward implied YOY price gains/HPA, with a focus on opportunities in calendar spreads.

–Bid/ask spreads tightened slightly across all expirations. Spreads on the front contract (Aug ’18) are just over 1.0 point (about normal with one month to run), while bid/ask spreads on the Nov ’18 contract (which has been my benchmark contract for the last year) are tight at 2.0 points. The CUS, DEN, and SFR contracts have the tightest bid/ask by region due to recent trades and interest from other traders. By contrast, LAX, SDG and WDC (all regions with low OI) have the widest bid/ask spreads.

–OI on futures rose from 39 to 44. There are three regions (BOS, MIA and WDC with no OI. I’d be eager to accommodate any trade in those regions.)

–Home price index futures for Paris are still on schedule to be rolled out this fall. Key to the Paris contracts is much more narrowly defined geographic reference region. See tab “Paris Futures” for more details.

–I’ve received inquiries on hedging Seattle risk, which since not listed on the CME will require an OTC trade. Seattle presents an interesting trading opportunity as it’s had some of the highest home price gains, but some worry about a bubble. I’m looking for OTC counterparties for either forward or option OTC trades.

–Additionally, with so much interest in SFR, I’d like to hear from any looking to engage in an SFR options trade (put/call –either side.

Please feel free to contact me (johnhdolan@homepricefutures.com) if you have any questions on this blog, or any aspect of hedging home price index risk.

Thanks, John

Recap of June CME Case Shiller Futures -June 2018

A recap of activity in the CME Case Shiller home price index futures has been posted to the Reports section. You can click here to access. The recap includes end-of-month prices, and price changes for the last month, tables on volume, open interest, intercity spread and calendar spread markets, as well as suggested one-year put option quotes.

Additionally, a few new pages have been added to the Reports section to include: Volume in Case Shiller futures since 2006, Open Interest since 2006, and graphs linking historical Case Shiller data with contract prices, for each of the 11 regions. In addition, the mid-June regional review had suggested option pricing for multiple strikes and expirations by region.

Here are the key point from the recap:

–There were 15 futures contracts traded in June in 3 regions (DEN, LAV, and SFR) across 5 expirations. There were no options trades.

–Activity picked up with especially in SFR with 9 trades and the tightest bid/ask spreads. The SFRX22 contract was quoted much of the month with <3 point bid/ask spread.

–For June, bids and offers were higher across many regions (except NYM, which fell ~2 points). Much of the move took place after CS #’s were released on June 26th.

–For the first time in a few years, there were 2-sided quotes in all 121 contracts.

–Bid/ask spreads widened slightly across all expirations.

–Longer-dated contract bids rose, raising implied HPAs, albeit from still very low prior levels.

–OI on futures rose to 39. There are three regions (BOS, MIA and WDC with no OI.)

–Home price index futures contract for Paris to be rolled out this fall.

–I’ve received inquiries on hedging Seattle risk. Looking for OTC counterparties.

–Added to Reports website section – Vol/OI since 2006, price graphs on all contracts

Please feel free to contact me (johnhdolan@homepricefutures.com) if you have any questions on this recap, or any aspect of hedging home price index risk.

Thanks, John

Mid April price updates -CME Case Shiller home price index futures

Here’s an update of quotes across the CME Case Shiller home price futures contracts from early April 16th. I’ve posted as there’s been quite a bit of bid/ask spread compression since March 29th both by regions and across the expirations. For example CHI bids are 6.4 points higher, while offers are 7.4 points lower, for a net improvement of 13.4 points (when aggregated across all expirations). So, for ten Chicago expirations with two-sided markets, that works out to tighter spreads by ~1.3 points per contract. Other regions, such as BOS, LAV and LAX also show similar spread tightening.

Four of the five mid-expiration contracts (i.e. May 2019- Nov 2020) have also seen bid/ask spreads tighten by more than 10 points (again, when tallied across expirations with two-sided markets). For both regional and expirations, spread tightening seems to be a function more of offers falling than bids rising.

Finally, not shown in detail, the limited amount of higher bids is concentrated in longer-dated maturities (from May 2019 on), which has had the impact of increasing slightly, the depressed implied forward HPA (annualized home price appreciation changes).

Feel free to contact me (johnhdolan@homepricefutures.com) to discuss this blog, or any other aspect of hedging home price indices.

Thanks, John

Dec/2017-recap posted

I’ve posted a brief recap of activity in the CME Case Shiller home price index contracts to the Reports section (or you can access here).

Highlights include:

–There were 3 futures contracts traded in Dec. in 3 regions across 2 expirations. There were no options trades.

–Volume for futures and options during 2017 (182 lots) was higher than 2015 and 2016 primarily due to increased in options trades. That said, activity has slowed dramatically over last 3 months.

–For Dec, bids and offers generally rose across most regions and expirations (except ask side of MIA).

–Bid/ask spreads were about unchanged

–Front contract (G18) bid/ask are just under 2.0 points.

–At month-end, there were bids in all 121 contracts, and two-sided quotes in all contracts out to Nov ‘19, and then X20.

–OI on futures and options remains unchanged at 34 and 17.

–OI remains very concentrated in November expirations (74%).

–Put writers still needed! I sense that options trading is the way to grow volume, as strong retail preference for taking one-sided risk exposures.

Please feel free to contact me (johnhdolan@homepricefutures.com) if you care to discuss any aspect of this post (or the recap) or any other aspect of hedging home price indices.

Best wishes for a healthy, happy, prosperous 2018!

John

Recap of CME price moves post CS #’s

Prices on the CME home price index futures were slightly higher after this morning’s release of the Case Shiller indices. The table below shows the market quotes on the expiring Nov ’17 contract from yesterday, versus the actual CS #’s released this morning. I would highlight three surprises: DEN and WDC where the index values were only slightly below the bid side of the Nov ’17 contracts, and NYM which came in far above the offered side of the NYMX17 contract. (Not only did NYM come out higher, but last month’s NYM index was revised lower, making the printed gain even more dramatic. Note that last month’s WDC index was also revised lower by 0.52. Absent that the WDC index value might have been within the bid/ask range of the WDCX17 contract.)

With the strong move in the NYM index, prices on contracts rose slightly (as illustrated here using the Nov ’18 contract). (Note that the S&P contract is also up 20 points, which might bias the results). Averaging across all expirations, bids are about 0.5 higher, while offers are about 0.7. Gains were largest in the BOS and NYM contracts, while CHI, DEN and WDC were marginally lower. As typically happens, the largest moves were seen in the contracts were the reference indices produced the biggest “surprises” (in this case NYM and WDC). I’d argue that changes versus expectations, not the size of a change, is what prompts contract prices to move.

There have been no trades today, and in fact it has been a very quiet day/ month. I haven’t noticed any other traders placing bids and offers today.

Please feel free to contact me (johnhdolan@homepricefutures.com) if you have any questions about this blog, or any aspect of hedging home price indices.

Thanks,

John

CME Case Shiller Futures Recap Post Oct 25 Release of CS Indices

I apologize for the delay in reporting the CME market reaction to Tuesday’s release of the Case Shiller #’s.

The table below highlights changes between Oct. 23 and today (Oct 26) to the Nov ’17 contracts.

On balance price levels (across all expirations) are ~<0.3 points lower, but certain regions (LAX, SFR) were up, while some (DEN, LAV) were much lower. (Note that there were modest price revisions to NYM and WDC indices but no meaningful move in the futures contracts.) My sense is that any price declines are the slightest bit more concentrated in longer expirations as offers on calendar spreads have inched lower.

There are 85 bid/ask spreads quoted (from a total population of 11 regions * 11 expirations =121) and those spreads have converged back to slightly tighter than Monday. Most of the tightening has occurred in the front three expirations. Of note, bid/ask spreads for the front contract (Nov ’16) now average <1.0 point.

Intercity spreads quotes are available for Nov ’18 expiration on the ten pairs of regions vs. CUS (10-city index).

There have been ten trades this month, but none since the CS #’s were released.

Please feel free to contact me (johnhdolan@homepricefutures.com) if you have any questions or trading axes that you’d like touted.

Sept 21 update

With the Fed meeting today and Case Shiller #’s next week, I thought it might be useful to update market participants on 1) where recent market quotes are, and 2) how they’ve changed during the month, as stocks have sold off. All of the qualifiers I outlined in the original Sept 12 blog remain in place. Note that this time I am using the Nov 2017 expiration. In addition, I’ve formatted the “Mid/Spot-1” column to highlight the three strongest and weakest forward markets).

Some observations:

Offering levels have fallen since Aug 31 while bids have remained about unchanged, resulting in slightly tighter bid/ask spreads. The reduction in offering levels has been less than the decline in the S&P 500 index (which is typical). SFR has had the biggest reduction both in dollar and percentage terms.
Bid/ask spreads now range from 0.6 in the CUS-10 index to 3.0 for BOS and DEN. Bid/ask spreads tend to be tighter where a) there have been recent trades, b) where other traders are contributing quotes, or where I tend to focus (e.g. HCI, CHI, LAX, NYM and SFR). Part of my rationale for the focus on the first four regions is that these are the four regions where option quotes can be electronically posted.
The “Mid/Spot-1” column is intended to show which regions are priced at levels that may be consistent with implied HPA. (Again, there may be some seasonality at play here as the comparison is between the index released in Aug 2016 (spot) and the index to be released in Nov 2017). For the first time in recent memory MIA and SFR have each dropped off from being one of the top 3 regions, while the bottom three (LAX, NYM and WDC) remain the same.

Feel free to contact me (johnhdolan@homepricefutures.com) if you have any questions or trading axes.

Basics: Scorecard for Sept 12/ how much does (should) stock market impact home prices?

The combination of three events (the end of summer, my decision to switch benchmark to Nov ’18 expirations, and the recent sell-off in the stock market) prompted me to re-think how to show summary information to anyone potentially interested in the CME Case Shiller home price index futures. This is the result of that effort (that I will try to publish going forward).

The table below shows recent quotes (not live) for the 11 Nov ’18 contracts. I’ve added the spot level (in green), a column that shows the bid/ask spread (in yellow), the percent difference between the mid-market level (i.e. the average of bid and ask) and the spot index (in orange). The columns to the right show both the dollar and percentage changes in bids and asks since some prior date (in this case Aug 31).

Some observations, and caveats:

Most bid/ask quotes are 1×1 (i.e. one lot bid vs. one lot offered), so be cautious about inferring depth of market. (As such, the only advice I offer potential traders is to use limit, not market orders).
Most bid/ask quotes are mine (either outright or on calendar spreads from other expirations). More input would be helpful for both depth and a variety of opinions, and might narrow bid/ask spreads.
Typically (and here) the HCI contract (e.g. the CUS 10-city index) has the tightest bid/ask spread. Most of the inquiries I get are focused on HCI, CHI, LAX, NYM and SFR contracts, so those are the contracts where I’ve tried to keep spreads relatively tight. Tighter spreads have typically resulted in more trades. A additional benefit of tight spreads on this contract is that prices feed inter-city spreads to other contracts. (As such, tighter HCI X18 quotes may translate into tighter bid/ask spreads on other contracts. In addition, since some of these quotes are generated by calendar spreads, either tighter Nov ’17 bid/ask spreads, or tighter Nov ’17/Nov ’18 calendar spreads, might lead to tighter Nov ’18 spreads).
The change in bid/ask spreads (either $ or %) only have relevance if you believe that the starting quotes were “accurate”. For example, I see the MIAX18 is unchanged. That could be explained by conservative bid on Aug 31.) In addition, I would expect smaller impacts to shorter expirations, and bigger impacts to longer-dated expirations. (The analogy of playing “crack the whip” on ice skates comes to mind).
The “mid/spot-1” column may be of interest in which contracts have the highest implies HPA (and the usual suspects of DEN, MIA and SFR show well) but remember to take into account seasonal factors between spot index (in this case the August release of the June index) with the Nov ’18 contract (which references the Sept ’18 index). I would note that all contracts are priced consistent with higher index levels 2+ years from now. (Any outright bears out there?)
I’ve teed up this table to prompt discussion on how much home price index futures “should” move with changes in the stock market (and housing/building stocks specifically) as well as with changes in interest rates. Any thoughts?

Net, there is lots of information here and lots of potential ways to express an opinion on where home prices are headed. (Don’t forget options!) Feel free to contact me (johnhdolan@homepricefutures.com) if you have any questions or trading ideas.

CME reaction -post July release of May Case Shiller #’s

Case Shiller quotes on Case Shiller futures are generally lower after this morning’s #’s (with the exception of CHI and WDC).

The table below shows quotes from sometime yesterday and this morning (~11 AM NY). As shown in the line “one day price moves” (which measures the change in mid-to-mid) CHI and WDC are the only two markets that are higher. The rest are unchanged to lower with the high-flying markets of DEN and SFR off the most. (This is typical as the strongest markets seem to need continual validation to maintain futures prices consistent with strong forward HPA.)

Bid/ask spreads are tighter for Aug ’16 contracts (which expire next month) but not (yet) for Nov ’16.

Please feel free to contact me (johnhdolan@homepricefutures.com) if you have any questions or trading axes.

Front contract bid/ask spreads tighter

Bid/ask spreads for the front contract (Feb ’16/G16) are tighter this morning. Hopefully this will prompt some discussion of (and trading in?!?) in front contracts. Note how seasonal effects are expected to kick in, resulting in some month-month NSA declines in index values.

Since Feb ’16 prices are linked to many May ’16 and Feb ’17 quotes, other contracts are also impacted. Narrowing the Feb ’16 quotes should also narrow the G16/G17 calendar spreads, which should help in YOY projections.

If anyone has a strong view on relative value (i.e. across regions) I’d be open to posting narrow intercity spreads.

Feel free to contact me (johnhdolan@homepricefutures.com) if you have any questions or trading ideas.