Quotes on CME home price index futures are marginally lower this morning after today’s release of Case Shiller numbers for the period ending June 30. Index values fell outside the bid/ask spread from yesterday’s prices on the expiring Aug 2018 (Q18) contract in 7 of the 11 regions. (Recall that Aug ’18 contracts settle on the index values released today, so there were “arbitrage” possibilities open to those who could reverse-engineer the Case Shiller indices, right up until the last day of trading.)
As highlighted in red in the table below, index values were below bid levels in 6 areas: HCI, DEN, LAX, NYM, SDG and WDC (although only by .01 in DC -hence the yellow coloring). Only index values in LAV were above the offered side from last night. (A note- the NYM index was revised up last month by 0.51 points and still fell below the bid side.) On average, the actual index values minus yesterday’s mid-market values was -0.35 points.
Given the negative “surprises” (defined in yesterday’s blog) in the index results, it is no surprise that contract values are – on balance -lower in my benchmark X19 (Nov ’19) contracts. The chart below contrasts prices from yesterday vs. prices on Case Shiller futures from earlier today). Mid-market changes are slightly lower, with only LAV, MIA, and NYM higher. As typical, bid/ask spreads are slightly wider in the first trading day after CS #’s. I’d expect spreads to tighten up by month-end.
There have been no trades yet today (and only one yesterday, in NYMX18).
Other parties are weighing in with bids and offers. Such activity seems to be focused on the Nov ’18 (X18) contracts. The bid/ask on the X18 contracts averages 1.8 points -an unusually tight spread with 3 months to run.
Finally, with the expiration of the Aug 2018 contract the CME has opened one for Feb 2020 (G20) expiration. Since the Feb 2020 contract settles on Dec 2019 index values I expect/hope that it will be used as the center of debate on 2019 HPA. I hope to start population G20 quotes later today.
Feel free to contact me (email@example.com) if you have any questions on this blog, or any other aspect of hedging home price indices.