Pre-July CS release

The Case-Shiller numbers for May will be released next Tuesday, July 29th.   While my sense is that there is an increasingly large chorus of  housing bears (e.g. weaker home sales, slower HPA, weak GDP, fears of rising interest rates), the August CME Case Shiller future contracts are priced for continued 1-2 % monthly increasesAug candle B in home prices for the next two months.

The candle graph to the right shows the prices for the bid/ask (and mid in green) for each of the 11 CME August 2014 (Q14) contracts expressed as a percent of spot value.  (For example, the BOSQ14 contract is bid 180.8 which is 4.2% above the 173.51 spot index).

Since the CME futures for August settle on the CS index #’s released that month, CME prices and CS indices should converge. Tuesday’s numbers will show whether the futures prices are too high, or too low.

The contracts have the highest gains (for the next two months) priced into the BOS and CHI contracts.  Recall that the Aug index references the Apr-May-June period.  Both BOS and CHI had horrible winters so it’s possible that especially strong seasonal factors are at work this year.

On the other hand, LAX has been the forward market with the smallest growth for several months now.  Housing trends seem to start in Southern California (and seasonal are much less of a factor).

While I normally qualify any remarks that the contracts are thinly traded so take futures prices with a grain of caution, I have to make that point more forcefully this month.  There’s been a noticeable absence of other traders improving existing bids or offers, and no trades have taken place since around the time of last month’s CS #’s.  Still the quotes are there for anyone who wants to disagree, either via a trade, or by posting better quotes.

Feel free to contact me – johnhdolan@homepricefutures.com – if you have any questions.