Case Shiller #’s will be released on Tuesday morning (5/27) and with that the May ’14 (K14) contract will go off the board (to be replaced by a May ’17 contract).
There was sporadic trading in K14 over the last few months and open interest of 30 lots is spread across 9 contracts. (Surprisingly, there was no OI in LAX). Some contracts (e.g. DEN and SDG) that otherwise have seen little interest, saw activity in the May ’14 contract. With the upcoming expiration, open interest in DEN, SDG, and WDC will drop down to very low levels. (Help!)
As illustrated in the above table, the mid-market quotes for May show a range of increases/decreases relative to last month’s numbers. The colder regions (i.e. BOS, CHI, NYM, WDC) , with slower recent HPA and more pronounced seasonals have midmarket quotes that are lower than last month, while the five warmer regions (LAV, LAX, MIA, SDG and SFR) show increases. Only DEN breaks the rule (as a cold region w/ higher midmarket quote).
(Anyone looking to unwind open positions or trade K14 contracts should be aware of holiday-shortened trading hours.)
As noted in a prior blog the new weights for the 10-city CUS index will be used for the May ’14 release. This table shows the historical numbers (without adjustments) so M-O-M and Y-O-Y % changes for the CUS contract should be ignored.
It should be interesting to see how the Aug ’14 contracts roll out as the new front contract starting on Wednesday. The current K14/Q14 (May/Aug) calendar spreads reflect the remains of recent HPA rallies and strong seasonal factors (particularly after this winter). As such, I would suggest that while the current K14/Q14 calendar spreads are justified, that we won’t see such steep 3-month spreads again in the next five years.
Given the recent”quiet” level of trading, I don’t expect that I will be populating May ’17 contracts with quotes across all contracts. (CUS, LAX and NYM will get my attention.) Anyone wanting to take on K17 as a project is encouraged to offer quotes.
Feel free to contact me (firstname.lastname@example.org) if you care to discuss this blog or any aspect of home price hedging.