I’ve been trying to get traders to react to volatility in the stock market by getting them to challenge whether such price moves change their expectation of forward home prices. While past blogs have suggested that the correlation has been weak, price moves (albeit mostly mine) since year-end, have shown much more of a correlation. The question to readers is – is this correct, or should home price futures trade (in theory) in their own world, OR be even more impacted by the level of the stock market.
The graph below shows a scatter diagram of the S&P500 index versus closes on the CUSX16 (10-city contract for Nov ’16) for three separate periods: Sept 1 -Nov 30 (blue diamonds), Dec 1-30 (brown squares) and since year-end (green triangles). Trend lines for each of the three periods are overlay-ed on the scatter diagram.
Clearly the slopes of the scatter diagrams have turned from a weak negative correlation (?) to positively sloped. The most recent scatter diagram also appears tighter. While this might be of more relevance had there been numerous bids and offers, many are mine, so what this reflects has been more of my personal pricing strategy. I write this here to challenge other traders into commenting that the slope should be flatter or steeper, or that the correlation should be higher or lower.
Please feel free to contact me (firstname.lastname@example.org) if you care to discuss, or propose a trade to take advantage of a different approach.