Since so much of the CME Case Shiller futures trading takes place in the front contract, readers should be aware of any tools to help them in their projections of near-forward Case Shiller values. One of the best resources is the publicly available Zillow Real Estate Reserach blog http://www.zillow.com/research/april-2014-case-shiller-forecast-6997/ (link) where my sense is that their analysts have demonstrated a good track record in forecasting the next month CS index numbers.
Their call for the June release of the CUS 10-city index is a 1.9% month-on-month gain (NSA). That forecasts fits it neatly between the current spot index and bid/ask levels on the Q14 (Aug) CME contract (see graph below).
The graph shows the historical CS index values, bid/asks spreads on the Aug, Nov and Feb contracts, the mid-market levels, and my interpretation of the ZHI forecast for the June release.
Note: the Aug ’14 bid/ask are 3.6%/4.9% above spot levels.
As such, it would appear to me that some combination of the following factors must play out for CS index levels over the next 3 months:
- Increases in the CS index levels will need to slow between June and Aug (despite ever more positive seasonals)
- The Q14 contract levels will rise,
- The ZHI is a tad too bullish, or
- Recent slowdown in HPA will overwhelm strong seasonals resulting in a slowdown in June-Aug (release dates of April-June levels) CS index growth
I’m neutral on which of the four is most likely. I just invite people to read the Zillow work, and to the extent they disagree that they consider using the Q14 futures to express their views.