One-year forward markets

The recent Feb 26th release of the (December) Case Shiller indices sets the stage for year-end comparisons.  While the G14 (Feb ’14) contracts have been ignored until recently, they now facilitate one-year forward price comparisons.

The candle bar chart to the right shows the width of the bid/ ask spread (with the green bars representing mid-market prices) denominated in terms of percentages versus the recent Case Shiller releases.  So, for example, the BOS market is bid 156.4 (or +1.7% over the spot 153.81 BOS index), offered at 163.4 (+6.2%) with a mid-market value of 159.9 (+~4.0%).

As mentioned frequently in the recent past, the California markets (LAX, SDG, and SFR) all have forward prices that are consistent with stronger one-year HPA (Home Price Appreciation.)  New York and Chicago are two of the weaker one-year forward markets with BOS and WDC not far ahead.

The 10-city HCI index is the tightest market (in percentage terms) at (+4.1/7.4%) or (165.0/170.2) while the LAV market is the widest.

As mentioned there has been no trading in the G14 series to date, but now, as a reference tool/trading platform/ for 2012-2013 HPA forecasts, I expect that interest will develop, and bid/ask spreads will contract.  I expect that some of this tightening will occur as a result of inter-city quotes.  I am aware of four G14 inter-city quotes (in LAV, LAX, SDG and SFR) at better than “arb” levels.  The LAX IC market of -27.0/-22.2 is the tightest.  That market translates into LAX trading at between 0.6 to 3.0% better than HCI over the next year.

Please feel free to contact me on the outright G14 markets, the inter-city spreads that I cited, or any other aspect of this blog at johnhdolan@homepricefutures.com