Recap of price changes post March release of CS #’s

The Case Shiller indices for Jan 2013 were released on Tuesday March 26th.  Much of the reaction in the CME prices was concentrated in the front (May 2013) contracts.  (A table of before- and after- prices for the CUS contracts is shown here, and a table of price changes across all regions is included in the Reports section or can be linked here. )

This Bid/ask spreads for the K13 (May 2013 expiration) that had averaged ~1.9 points moved out to 3.3 on index “surprises”.  That is, certain index results (e.g. NYM, MIA) were slightly stronger than prices suggested by the May 2013 contracts, while other (e.g. SDG, WDC) were weaker.   As a result the most pronounced CME price moves were in front-contracts in these four regions.  NYMK13, which had been 158.4/158.6 before the numbers traded at 162.0, and MIA improved from 151.8/154.0 to 153.4/156.8.  On the other hand, SDGK13 dropped from 165.4/168.6 to 162.8/167.8 while the bid/ask widened.

The widening in the bid/ask spreads of the front May 2013 contracts, spilled over (via calendar spreads) into wider bid/ask spreads in the May 2014 and 2015 series.

On average bids were up 1/4 point (across all regions), while offers were up 3/4 for overall slight improvement in prices and a general widening in bid/ask spread of 1/2.   66% of this widening occurred in the three May contracts (out of 11 total).

The BOS and SFR contracts were the only two contracts to show tighter bid/ask spreads (across all 11 expirations) post the CS index release.  (Thanks to those contributing quotes!)  BOS spreads compressed as bids raised while offers lowered,  while in SFR bids generally increased more than offers, and longer-dated offers in SFR dropped.

Spread widening in four contracts (DEN, MIA, NYM and WDC) accounted for 100% of the overall spread widening (help would be appreciated!)  As noted above, most of that widening was in the May series.

Having moved one month closer to the May expiration, I would expect that bid/ask spreads will compress in the May 2013 contract.  I hope to post a blog on inter-city spread quotes that might help there.

The other “angle” that I expect to develop is that the recent trades in the CUSX16 and X17 contracts have given some possible anchor to longer-dated contract values.  The debate as to factors behind home prices four years from now (e.g. new construction, revival of RMBS market, supply of shadow inventory as prices grind back toward 2006 levels, clarified role of GSEs, changes in lending standards, impact of possible removal of mortgage interest deduction, and level of mortgage interest rates) should all weigh on prices for the Nov 2016 and 2017 contracts.  I would expect (and hope for) some interest in calendar spreads and longer-dated inter-city spreads.

Please feel free to contact me (johnhdolan@homepricefutures.com) with any questions about the attached data, or any aspect of housing derivatives.