Rethinking LAV

One of the (few) benefits of contracts with (very) limited open interest and volume, is that you can have a whole-sale rethink of value without impacting open positions.  With this mindset, and having reviewed this month’s Core Logic forecasts, (http://www.corelogic.com/about-us/researchtrends/corelogic-home-price-insights.aspx)  I took another look at the LAV contracts.  While I’ve been concerned about the impact of not getting enough water to LAV residents, price history (based both on Core Logic and Case Shiller indices over the last 12 months) has been above average, and the recent Core Logic reports calls for some of the strongest gains (over the next year) of the ten regions that they highlight.  (You should read, no subscribe, to their report).  Based on their report and even acknowledging that index compositions and measurement approaches may be different, CME LAV prices “shouldn’t”  have the lowest implied HPA.

So, I tweaked many of the forward LAV contracts a bit higher today. These changes put Nov ’18 price gains (measured as a percent gain) closer to  LAX gains (which Core Logic cites as “overvalued”)  and which are also below CUS index implied gains.  There has been near zero trading interest in LAV over the last year, but I’d like to change that (if only to start a discussion).

Does anyone want to venture into a debate of where LAV might/should be priced versus LAX, SDG or CUS in 2018 and beyond?

Feel free to contact me (johnhdolan@homepricefutures.com) if you’d like to have the discussion offline.