While trading in longer dated contracts is more at the heart of hedging home price risks, my sense is that confidence in longer-dated markets is a function of believing that shorter-dated contracts are priced tight and correctly (that is to expectations of pending Case Shiller releases). Tight spot contract prices may also help feed, via debates over calendar spreads, into tighter longer-dated contract prices.
Thus I am a fan of anyone offering early, well-researched views on upcoming Case Shiller releases. (In case you were not aware) Zillow’s economists have been offering their predictions of the next month’s Case Shiller CUS-10 index for a long time. For example, this link shows how on Feb. 27- the day the Feb Case Shiller numbers were released -they offered their expectations for the March numbers.
Since March numbers are tallied from generally public data ending in January, it’s completely plausible that an entity with access to data, experts who can manage data, and researchers who focus on home price index calculations, should be able to come up with forecasts 3-4 weeks later. (Remember, the Case Shiller indices were conceived during a period pre-internet, when data collection and analysis took way more time. The two-month delay in releasing CS #’s made much more sense years ago.)
The Zillow MOM not-seasonally adjusted (NSA) prediction for March numbers is -0.1%. (Note that the headline Case Shiller numbers, as well as the CME contracts reference the not-seasonally adjusted series. Zillow also offers five other forecasts but the CUS-10 NSA forecast should be of particular interest to those trading CME futures.)
Not surprisingly CME prices for the May 2015 contract are not out of line versus Zillow’s prediction. Recent May contract quotes of 186.6/189.0 generate a mid-market value that is almost unchanged versus the February-released value of 187.81. Between some tail wind supporting home prices, and negative winter seasonal factors (which one can observe in Zillow’s seasonally adjusted forecasts) stable NSA Case Shiller values are reasonable.
So, please be aware of this Zillow offering. While one-month forecasts versus a contract trading with a wide bid/ask spread 3 months forward may have limited value today, pay close attention to Zillow’s April 28th forecast of May Case Shiller #’s. If history is a guide, by that point the May CME contract should be trading much tighter, and Zillow’s forecast will be on the settlement value of that contract.
As always, feel free to contact me (firstname.lastname@example.org) if you have any questions.