It’s been a slow month (until this morning’s 9 trades) so I’ve confined any comments to the 140 characters allowed on Twitter (@HomePriceFuture). However, with the September release of Case Shiller #’s tomorrow morning, and with the change in trading hours for the CME futures, I thought that I’d share some thoughts on how quotes might change (or in this case -not) going into the CS press release.
Recall that the start of trading in CME CS futures has been pushed back to 8:15 (Chi, 9:15 NY). One reason for doing this was that it would allow traders to leave their quotes working through the release of the Case Shiller numbers 15 minutes before the open, thus allowing them a window to change their quotes on any “unexpected” numbers. In the past most traders, including me, would widen spreads or remove quotes all together. That left the CME website with no (or wider) quotes at the one time of the month that traders were most focused on these contracts. That didn’t make a great impression on 1x/month visitors. Then on the day CS #’s were released, market quotes would gradually reappear over a 2-3 hour (or longer) period.
So, tomorrow I expect that quotes will be closer to where they’ve been for the last few days right through the CS release. If CS numbers are in line with expectations then, in theory, there shouldn’t be too much reason for quotes to change. If however, one of the regional numbers results in a surprise (even if only for a revision) then the trader posting the quote will have 15 minutes to modify their quote before the open. Let’s see how this works tomorrow.
That all said, it begs the question of what numbers traders might expect.
Since the August release is known, and quotes for the November contracts exist (both bid, mid and ask), expectations for the September release should be somewhere in-between. But where? After all, some of the California contracts have a 9-10 point range between the Case Shiller index released in August and the November markets. Seasonal factors are not linear and some contracts might be the beneficiary of stronger momentum than others. Net expected price imporovements for each of the regions is likely to differ.
The following table is my effort to throw some numbers on the wall with one (not revealed) methodology for estimating expectations. (I use no fundamental analysis but put huge weight in what “the market” is saying about November contract prices. This would be a circular discussion if I posted all the November prices, but there has been good interest from others over the last month in tweaking prices so I believe that November quotes better reflect expectations. Deeper and tighter markets would of course carry more weight, but you fight with the army you’ve got.)
The table shows my estimates of tomorrow’s headlines today. My sense is that the market and index prices are consistent with the CUS (10-city index) being up 2.1% from August and 12.6% from 12 months ago. As has been the case all year, SFR and LAV will show the largest increase in prices, while the Northeast (BOS, NYM and WDC) will lag. (One caveat-the month-on-month numbers are more volatile than year-on-year prices moves, and thus should be viewed with more caution.)
While this exercise has been important in the past, it becomes more critical if there’s only a 15-minute to adjust quotes to surprises. Of course different traders will likely have different expectations so one trader’s surprise might be another trader’s non-event.
Net, traders following home prices should have even more reason to be watching CME prices from 9:15-9:30 tomorrow morning (NY hours) as reactions to Case Shiller index releases is likely to be much more compressed.