prices – Page 2 – HomePriceFutures.com

Post Nov Case Shiller #’s

Prices on the Case Shiller futures were mixed, but on balance, slightly higher today, post today’s release of the September Case Shiller indices. The table below highlights changes in the Nov ’16 contract between Monday and today’s close. Six regions showed higher prices while four were lower.

Bid/ask spreads widened primarily due to wider K16 quotes. (K16 quotes had primarily been generated from Nov ’15 quotes).

There were 7 trades today involving two regions (CUS and LAX) and four expirations (Feb, May, Nov ’16 and Nov ’17).

I posted preliminary quotes on Feb ’16/Feb ’17 calendar spreads to start discussion of 2016 HPA. Feel free to weigh in.

With the expiration of Nov ’15 the CME opened up a Nov ’20 contract.

Feel free to contact me (johnhdolan@homepricefutures.com) if you have any questions about this post or any other issue related to the CME Case Shiller futures.

June recap posted

I’ve posted the June recap report, as well as updating graphs for month-end prices, price changes between May and June, and tables showing volume and open interest over the last five years. All reports, graphs and tables are in the REPORTS section of this website.

As to the recap, there were only two trades, so not much to say there.

On balance it was a quite month with limited quote updates (with the exception of traders in CHI and SDG).

One bright spot is that bid/ask spreads converged back to levels from a few months ago. Spreads are tighter in all 11 regions and in 10 of 11 expirations. Much of that tightening took place in the Q15, Q16 and X17 contracts. The Q15 front contract is now at bid/ask spread levels seen when other contracts had two months to expiration.

The CUSX16, and now X17, contracts are carrying their weight as benchmarks. I’ve used the 2-point bid/ask spread in the CUSX17 contract as a leg in intercity spread quotes – which is part of the reason that X17 bid/ask spreads have come in so much.

The other ray of hope is that the number of inquiries for information on the contracts continues to climb.

Please feel free to contact me at johnhdolan@homepricefutures.com if you have any questions. (I’ve switched servers so hopefully fewer tech issues going forward.)

John

Post March CS #’s

The CME housing futures moved slightly higher, and bid/offered spreads widened after this morning’s Case Shiller numbers were released. Four contracts traded (bringing the MTD total to 12). All trades were on calendar spread orders in the CHI and SDG regions.

The table to the right shows the historical indices for each of the 11 contracts (the ten regional contracts plus a comparison of the 10-city index) and (stale) prices for the Nov ’15 contracts for both yesterday and today.

The change in mid-market CME prices is highlighted in yellow. The two biggest CME price increases from yesterday are in green (i.e. BOS and SDG), and the two biggest price declines (SFR and WDC) are in red. Note that the biggest changes in CME mid-market levels (both up and downward) are associated with moves by the Case Shiller indices in the same direction.

As I noted in the first sentence sentence, bid/ask spreads were wider. A comparison between the last two lines in the table shows the bid/ask spread from yesterday versus today. While some contracts tightened (e.g. SDG) on balance bid/ask spreads were generally wider across regions, and most expirations out to Aug ‘2016. (Longer dated contract bid/ask spreads actually held in fairly well.)

Please feel free to contact me (johnhdolan@homepricefutures.com) about this table (or blog) or any other aspect of home price derivatives.

Rent growth~home price growth

In academics, it’s often taught that home prices should in the long run move in line with rents. After all (it is argued) home purchase may be viewed as akin to prepaid rent. Multiple websites (including this CNN Money page) highlight current and historical price/rent ratios. The popular “rules” that there are levels (of the ratio) that describe better times to rent or buy should have readers consider the notion that rent might have an important role in home prices.

As such, yesterday’s headline (as analyzed here by Axiometrics.com) that growth in year-on-year increases in apartment rentals reached recent highs, should either 1) give a boost to the bulls in this market, 2) reflect a reason that prices have risen so strongly over the last two years, or 3) be deemed irrelevant as the ratio is both too noisy and compares apples and oranges (apartments vs. houses). (I say “too noisy” on point 3 as price/rent ratios were at all-time highs in 2005, and then proceeded to go relentlessly higher for months after. I also offer the “bad comparison” language as apartment rents may be concentrated in the more popular urban areas, while home price indices may give a broader weight to less-popular suburban markets.

Those cautions noted, I find option 1 to make the most sense (over the long run) and I would encourage readers to review the Axiometric link (and any other articles on this subject) as my sense is that home prices (in areas covered by these rental increases) are unlikely to be under pressure if rents keep rising. Home prices often reflect LONG term trends, and the strong rise in rents should lend support to floor levels of implied HPAs in many calendar spread markets.

I’d be happy to take this conversation further with anyone looking to debate, or trade, individual regional calendar spreads. Feel free to contact me at johnhdolan@homepricefutures.com.

Nov recap (finally) posted

I’ve finally been able to post a recap of activity in the CME Case Shiller (home price index) Futures here. (I’ve had challenges at the server level, on the trade-entry platform, and with juggling work that have all contributed to the delay. My apologies.)

Net, trading slowed (to ten contracts) but was dispersed across four regions and five expirations. There was one calendar spread trade, but no IC trades.

Price levels were mixed with some contracts rallying in response to stronger than expected Case Shiller #’s (at least by quotes in the expiring Nov ’14 CME contracts). MIA and SFR were slightly higher on the month, while CHI, NYM and WDC were lower.

Bid/ask spread were about flat overall with some contracts tightening (e.g. DEN, MIA) while some widened (e.g. CHI, LAX and NYM).

Open interest fell sharply as 35 options and 36 futures (as of Oct.28) expired.

The CME introduced a new Nov ’19 expiration. At month-end only the CUS and NYM contracts had quotes for 2019.

The CUSX16 has performed admirably as a benchmark security with a bid/ask spread that has been <2 points for much of the month, and <=1 point for many days.

I introduced one new graph (CUSX16 vs. SP500) that I intend to blog about next week.

Recap of CME Contracts post July CS #’s

The July release of the Case Shiller numbers for May were slightly lower than “suggested” by quotes in the Aug 2014 contracts from the day before. As such, CME quotes fell (but bid/ask spreads were much tighter) by the end of the day in all but one contract (LAV).

There was only one trade in the SFRQ14 contract.

The table below shows CS indices for the 3 prior months * (*-note indices have been updated to show revisions -which were relatively small), CME prices before Tuesday morning, and then prices later on Tuesday.

Mid-market levels on all contracts were lower by the end of the day. Note that some contracts (e.g. DEN, LAV, LAX, and SFR) had higher bids. However, offers in each of these contracts came down more than bids rose, resulting in the decline in mid-market levels.

The combination of higher bids (on some contracts) and lower offers (on all) resulted in average bid/ask spreads contracting from 3.2 points to 1.3. The widest bid/ask spread when trading ended was 2.0 points. Both the 1.3 average and the 2.0 maximum are relatively tight for ~30 days before contract expiration. Open interest in the Aug ’14 expiration is 18 contracts (across 7 regions). Between those “interested” parties and tight bid/ask spreads, there may be some better chances for trading over the next month.

The bar chart below shows a comparison of the July (release of CS( #’s versus the June release and August mid-market contract prices from the day before.

The red horizontal bars in the candle graph to the right show how much (on a percentage basis) of the difference between the June (release) index levels and the (higher) August mid-market contract prices was eaten away by the July (release of the) CS #’s.

There were only two CS indices (LAV and LAX) that were ~50% of the difference between June indices and Aug mid-market levels.

While one shouldn’t expect a straight line between index releases (given momentum, moving averages, and seasonal factors), the notion that the BOS, CHI, SDG and WDC indices were <1/3rd of the June index/Aug mid-market spread seemed to immediately put downward pressure on Aug CME prices (particularly offers). The four indices just mentioned were the four contracts with the biggest declines in mid-market values.

Looking forward the August (Q14) contract levels are consistent with further upside in the Case Shiller index levels across all regions over next month (and again looking further ahead to Nov ’14). All contracts (except SDG) are consistent with 1-2% gains in index levels next month.

(My next blog will focus on Aug ’14/Aug ’15 spreads and implied HPA. Tease: one year forward for CUS index is 5.7% (using mid/mid prices).

The BOS and CHI contracts no longer look like the outliers that they were last month (although CHI remains the contract with the biggest “expected” index gain for August.

I’d be happy to discuss my interpretation of these 3 illustrations in more detail, or to hear from those that have views that are outside the price forecasts implied by the August contract prices. Feel free to contact me (johnhdolan@homepricefutures.com).

Recap of CME contracts post June release of Case Shiller #’s

The complacency of prices in the CME contracts got a mild shock yesterday with the June release of the April Case Shiller indices. Prior to Tuesday there had been no trades in June (that I was aware of) and very few meaningful price changes. That changed when the S&P announcement of the Case Shiller numbers revealed weaker than expected (by the market) results.

(While use of the contracts in longer-term hedging is a goal, the reality is that the bulk of trades currently take place in the front contracts. As such, I’m going to focus my comments there.)

The table below shows historical CS indices (available prior to Tuesday morning, so without any revisions), bids, offers and mid-market levels for the Aug (Q14) contract from Monday’s close, and then mid-market levels for about 3:30 on Tuesday afternoon. With the exception of the BOS and CHI contracts, most Q14 contract prices ended up lower on the day.

A comparison of the June (release) CS #’s versus the May release and August contracts may shed some light on the degree of the “surprise” to the market.

The red horizontal bars in the candle graph to the right show how much (on a percentage basis) of the difference between the May (release) index levels and the (higher) August mid-market contract prices was eaten away by the June (release) CS #’s.

Now I’m not arguing that a linear interpolation between May and August is what the market should expect. Between seasonal factors, momentum, and the impact of moving averages, getting from May index levels to Aug mid-markets is not a straight line.

In addition, there’s nothing that says that the Aug contract prices are correct. That said, if the market believes in Aug prices, CS indices somehow have to get to Aug levels from May.

As the graph indicates the impact of the June numbers ranged from near zero (NYM) to ~50% (BOS) of the difference between May and August mid-markets. Checking back to the first table, BOS contract prices jumped, while NYM (and LAV, LAX and SDG) sagged. Net – new information (the June CS #’s) resulted in a shift in market prices.

Looking forward the August (Q14) contract levels are consistent with further upside in the Case Shiller index levels across all regions over the next two months.

Again, these are just observations and I will leave it to others to opine on importance of seasonal factors, momentum, etc.

I would highlight that not only do the BOS and CHI contracts have the highest % gains priced in, but those were the two contracts that traded yesterday.

Net, Aug ’14 prices are consistent with an expectation that journalists will be reporting that “Case Shiller index levels increased this month” for the next few months.

6 month perspective: Price changes Oct to April

With the release of the April Case Shiller #’s almost upon us (Tuesday April 29th), with the increasingly bearish tilt in some housing forecasts, and with the (OK a personal) perspective of having snow in my yard in both October and April this year, I thought that it might be interesting to compare how quotes for the CME home price index futures have changed over a ~6 month time frame. Besides, traders need a scorecard for next week.

The graph to the right shows the prices (and change in prices) for the HCI (10-city index) contracts between Oct. 31 and mid-day April 24th. Changes for the Q15 and X18 contracts that were introduced subsequent to Oct 31 are not shown. Also changes in the X13 and G14 contracts between Oct 31 and each contract’s expiration are also not shown.

The Oct* and Mar* columns show the CS index levels (in the month that they were released!) and summary changes by region and contract are show the far right. (A table with changes for all 11 regions is included in the Reports section or one can link to it here.)

Here’s some summary highlights (but before reviewing, I’d like to thank all of the traders that helped in this effort):

Bids are higher for all regions (although barely so in NYM). As 9 expirations are tallied here (or 99 contracts) bids are up about 4 points on average across the 11 regions (392/99). The biggest increases have been in MIA and SFR – two contracts continuing to show strong index growth (see Oct*/Mar* columns)
Bids are higher even though for some contracts (e.g. CHI) index levels have fallen. (There is a bit of an apples and oranges comparison as seasonality may play a large role in certain regions, particularly those in the North).
With a further qualifier to seasonal factors, some contracts (e.g. WDC) have rallied even though index levels are almost flat, while other contracts (e.g. LAV) have stalled, while index levels are up more.
Offered levels have either not moved up as much as bids (thereby causing bid/ask spreads to tighten) or in some cases actually fell. Of note is the lower offers in both the LAX and SFR contracts (as well as unchanged offers for SDG). Longer-dated California regional offers were much too high last summer and as forward HPA projections have come in, longer-dated California offers have fallen. In addition to the LAX and SFR regions, the CHI contracts also have both higher bids and lower offers.
The compression in bid/ask spreads is noticeable across multiple expirations. While there seems to have been an effort made to address the wider bid/ask spreads that typically occur in the May (K) contracts, the August (Q14) contract needs help.
While NYM region looks like an outlier, the NYM contracts were some of the tightest bid/ask spreads back in October. In fact the Aug ’15/ Nov ’15/ May ’16 NYM contracts still remain some of the tightest bid/ask spreads despite the absence of spread tightening. By contrast, the WDC contracts continue to have the widest bid/ask spreads, despite slight contraction in bid/ask levels.

I try to remain agnostic on forecasts, but my key takeaway is that bids have been moving higher even as there’s been more (but not universal) bearish calls coming from selected bloggers. As market maker (and fan of this product) I just hope that some of those bearish analysts find their way to this site. If bids keep rising and analysts keep getting more bearish, the likelihood of a trade is rising.

Feel free to contact me if you have any questions (johnhdolan@homepricefutures.com) or I’ll see you Tuesday.

Feb ’14 (G14) pre Case Shiller #’s

With the February release of the Case Shiller #’s for December 2013 only a few days away (Tues. 2/25 8:15 AM Chicago) I thought that it might be a good time to review quotes for the expiring Feb ’14 (G14) contract. Recall that the settlement prices for the G14 contracts will be the index values announced on the 25th. As such, it can be argued that traders in the front contracts are expressing views on what they think the index values will be.

In quarterly contract expirations over the last 3-4 years traders have tended to bracket the actual Case Shiller index value (i.e. bidding below the actual CS #’s and offering above) on about 70-80% of the contracts. In the other (20-30%) cases the actual Case Shiller values were either higher than than last offer, or lower than the last bid. Sometimes these “outliers” were the result of either very tight bid/ask spreads (e.g. 0.20), index revisions (WDC had 3-4) or just situations were a trader had a strong bid (or offer) that went unchallenged. (There have been contract expirations where all 11 markets bracketed the actual CS #’s and other expirations where 5-6 contracts settled outside the final bid/asks spread, which suggests that surprises are lumpy).

My point is that while the expiring contracts represent expectations of the index numbers to be released, that there have been opportunities for those with strong views of the upcoming Case Shiller values to profit, even on the last trading day of a contract.

Here’s quotes for the G14 contract from yesterday (Thurs Feb 20)

Bid/Ask spreads are slightly on the wide side (averaging 2.3) for this close to settlement. This may be a factor of small open interest (7 contracts) in the G14 series.

Mid-market values are, on average, slightly lower than the Jan. 2014 CS indices (using the CUS change of -0.2%). The “warm region” markets of LAV, MIA, SDG and SFR all have higher mid/Jan values (and LAX is at 0.0%), while the CHI and WDC markets have the biggest percentage drops (and the other “cold region” markets (BOS, DEN, NYM) are all also negative.

Of interest are the changes in the Dec/Jan/Feb values between Dec ’12 and Dec ’13. Some strong markets (e.g. LAX) have seen slower increases over the last few months, while some weak markets (e.g. NYM) are declining at much slower rates.

Feel free to contact me (johnhdolan@homepricefutures.com) if you have any G14 themes that you’d like to have touted. There are a handful of intercity (G14 v G14) quotes working as well as one-year calendar spreads (G14 vs. G15) in all 11 contracts.

Jan Recap posted

I posted a recap of activity in the CME Case Shiller (home price index) Futures for the month of January to the Reports section (or you can click here).

The highlights of the month include:

Increase in volume (albeit only from 8 to 15)
Modest increase in OI
Slight uptick in average prices (more so in SFR, less in SDG)
Large tightening in bid/ask spreads across numerous regions and expirations
New page showing selected intercity spread quotes
New table showing mid-mid % price difference (~HPA) by year, from 2014-2018 across all contracts

I also posted on page 2 a notice that the CME has posted the CUS contract (but not the regions) on their website. (Regional prices may take a some time.) While not the “free” bids and offers that some traders were used to from 2012, this effort puts the housing contracts at parity on free price information disclosed with other CME contracts. (It’s up to us to fill in changes).

Enjoy the recap. If you find this of value, please feel free to donate to my Bitcoin account (see bottom of homepage).

As always, if you have any questions, or would like to see some particular area discussed, or trade idea touted, in more detail, contact me at johnhdolan@homepricefutures.com