LAV home prices – “Most over-valued” according to Fitch

In June, the Las Vegas Review-Journal picked up on a report from Fitch that had cited Las Vegas as the most over-valued city in the US. (See LVRJ article here.)

If so, the CME markets have not reacted, as quotes on futures contracts – that expire as far out as Nov 2022 – remain consistent with LAV having the strongest cumulative home price appreciation across the ten regional contracts.  To be sure, prices (see table/charts below) are suggestive of annual home price appreciation (HPA) slowing dramatically from the +10% gains of the last few years, but calendar spreads (i.e. the prices traders are willing to pay to buy one contract while simultaneously selling another) are consistent with home price indices continuing to rise over the next 3-5 years.

That said, the factors Fitch cite are real, and memories of the 2007-08 crash are still fresh in the minds of builders, homeowners and real estate agents.  Those with concerns about a bubble in LAV prices might want to learn more about the CME futures and options, as they may be the purest way to financially express a view on LAV index expectations.

There has been little volume in LAV contracts, but the quotes are (were) actionable.  I typically show 1×1 markets (one lot bid with one lot offered) but am eager to facilitate retail-sized inquires either by bidding/offering more contracts than shown, or at better prices. (Note- The Notional amount of one lot = $250* price, so a price of 200 would be $50,000 notional value.)  The CME typically requires <10% margin on any futures contract, so leverage is possible (but your broker will determine final margin requirements).

Feel free to contact me ( if you have any questions about this blog, or any aspect of hedging home price index exposures.  I can’t/don’t give financial advice but I’m happy to help readers understand how these CME products work.


What if I own a condo…(or live in New York City)?

I often use reader inquiries as prompts for blogs.  This week was no different in that I received a question on how might hedging condo price risk differ.  That lead me to reviewing some of the information posted on S&P websites.

It turns out that there are S&P  Case Shiller indices for condos on five regions- BOS, CHI, LAX, NY, and SFR.  The graphs below are derived  from the NSA (non-seasonally adjusted) condo and aggregate indices available (once you register) on the S&P website. .  I’ve run three sets of graphs for each of the five areas to include: 1) a review of absolute levels between condos and aggregate CS indices, 2) the percent YOY changes over time, and 3) a scatter diagram to test the theory (potentially useful for those looking to hedge condos) of YOY returns of the condo vs. aggregate indices.

In four of the five regions (BOS, CHI, LAX and SFR) it appears that the condo indices are highly correlated with the aggregate indices.  This might be useful for those with condos in those regions as it suggests that a hedge using CME Case Shiller futures has/ is (?)/ likely to track the comparable Case Shiller condo index.  Now, of course all the same caveats apply in hedging any one house versus a Case Shiller index, to include that basis risk (i.e. the risk that your house’s price movements vary from that of a Case Shiller region).  That said, if you can get comfortable using a CME future or option to hedge a home, there seems to be a strong relationship between home and condo prices.

Note that each of the five condo indices has outperformed the aggregate index.  (No surprise with Millennials and AARP members both looking for smaller places in 24/7 cities.)  From a trading perspective this means that one might need to adjust hedge ratios.

The outlier is New York.    While there’s no difference in the geographic coverage areas, it may be the case that condos in the NY region are more heavily concentrated in the metropolitan NYC area, and that the city has – at least since 2007 – outperformed the suburbs.  (I added “since 2007” as correlations look more robust over a 25-year period).  This suggest that someone with a condo, or maybe even just NY City exposure, might prefer hedging via an OTC (over-the counter) trade that references the NY Case Shiller condo index.  I’d be happy to help with such, but the menu of OTC issues -price discovery, counter-party risk (and associated margin issues), and lack of fungibility, would need to be addressed.  I’ve written about OTC trades before in a Dec 2016 blog.  and think that the Case Shiller NYM condo index would be great place to start OTC trades, as: 1) it’s a pretty big market, and 2) the traders that live there are more likely to be receptive to dealing with derivatives.  (BTW- Seattle would be 2nd choice).

So, to get back to the reader’s inquiry, it seems that the aggregate indices are highly correlated with condo prices in 4 of 5 regions.  While CME Case Shiller futures and options present challenges (i.e. basis risk) if you want a listed, publicly traded contract to trade with no counter-party risk, they might be worth a second look.

Feel free to contact me ( if you have any questions on this blog, or any other aspect of hedging home price index risk.

Thanks,  John




The importance of QQQs and QvQs in projecting HPA gains for SFR (and other regions)

OK, I just wanted to have some (geeky) fun with a creative title that might might then transition into some serious  comments on home price outlooks.  Here goes:

QQQ is the NASDAQ symbol for the benchmark ETF that is loaded with popular technology companies, many of whom have a large presence in the Bay Area (e.g. Apple, Facebook, Alphabet, Netflix).  The ETF is up more than 24% in the last year, and those stock gains have probably had a big impact on rents and home prices in the SFR contract area.  However, recent setbacks (e.g. Facebook dropping nearly 20% in one day) might be leading some investors to question how much further this sector can rise, and therefore whether the tailwind on the SFR index (at +10.87% in the last year) will continue.

Most market participants know of QQQ, but few follow the QvQs traded in the CME housing price index futures.  The QvQ second portion of the headline is my reference to one year calendar spreads between the Q18 and Q19 contracts.    There’s little publicity, and almost no trading, but I think that it might be a useful tool for measuring sentiment in expected HPA (home price appreciation).

The table to the right shows Friday’s prices for the outright Aug ’18 and Aug ’19 markets, as well the calendar spread quotes for all 11 regions.   Recall that a calendar spread allows traders to simultaneously enter a long and short on two contracts at a pre-determined priced difference.   For example, in the HCI (10-city contract) the bid represents one traders willingness to buy the Aug ’18 (Q180 contract 7.8 points below where she’d sell the Aug ’19 (Q19) contract, while the calendar spread offer would do the opposite (i.e. sell Q18 at 6.8 points below the purchase price of the Q19 contract).

Theses differences can be converted into percent gains versus the mid-point of the front (i.e. Q18) market.  That is, the =7.8 bid is 3.4% of 227.3 mid Q18 market, while the -6.8 offer is a 3.0% difference.   While traders can post prices for a variety of reasons  (to include more hedgers than natural longs over a one-year horizon),  the Q18 and Q19 markets should each (eventually) converge to the indices released in each of those two months.  As such, some might view calendar spread markets as an approximation of (conservative) expected YOY gains in the index.

A key point to note is that for many of the 11 contracts, the QvQ  (Q18 vs. Q19 calendar spread markets, are priced at levels consistent with a large slowdown in HPA.  For instance, the LAV index is up 12.6% in the last year, but the LAV Q18/Q19 calendar spread quotes are consistent with about 5% gains for the next 12 months.  In addition to LAV, the DEN, LAX, SDG and SFR calendar spreads are centered around levels where one year forward HPA would be <50% of the last 12 months.

Again, there’s been near no volume, so thinness of markets is another possible explanation.  That said, each of the quotes is (or at least was) actionable.

Several prominent housing firms (e.g. Core Logic) are calling for >6% returns over the next year.  Now while the reference indices may differ, the magnitude of the differences between such forecasts and the QvQ markets suggests that something is out of line.   If the forecasts are correct, there may be an opportunity for a trader to sell a calendar spread (i.e. go short front contract, long back contract) and make money as higher HPA (and therefore higher forward prices) are realized.  On the other hand if the QvQ market quotes incorporate forward market views, then opinions on gains for the next 12 months might need to be shaved.

Net, you should follow the QQQs to see how home prices in the SFR market might change, but don’t ignore the QvQs.

Feel free to contact me ( if you have any questions on this blog, or any aspect of hedging home price indices.

Thanks, John



Pricing of longer-dated contracts- imbalance or opportunity?

There’s been an ongoing inconsistency between forward prices in the CME Case Shiller futures, and the quarterly Pulsenomics survey of home price forecasts.   CME futures (at least those for 2020 and beyond) are priced at levels that appear to have a much less bullish outlook than the Pulsenomics surveys.  There may be several reasons for this (to be touched on below) to include that the risks associated with futures trading (at least versus participating in a survey) have created an opportunity for those who embrace the survey results.

To be clear, I am a huge fan of the Pulsenomics survey (as well as a contributor).  I’m just highlighting this inconsistency to prompt discussion, and hopefully more trading in CME futures.

Prices for the rolling 11 expirations of Case Shiller futures have been consistent with sharply declining HPA (post 2020) for at least the last year.  The graph below shows the YOY gains for the published Case Shiller indices in black.  To the right, marks show bids and offers on futures contracts (either against historical index values -e.g. Aug ’18 contract vs. index value released in Aug ’17 – or for one futures contract versus another -e.g. Nov ’21 contract vs. Nov ’20 contract) are shown.  Note how YOY gains (using the mid-point between bids and offers) trends down to 1% YOY price differences for 2021 vs. 2022.  (The low level of YOY gains is even more pronounced in the SFR -San Francisco -contracts).

By contrast a review (see diagram below) of the Pulsenomic survey results for 2018 Q2 show a much less gradual decline in explicit expectations.  CME quotes fall from having ~6% YOY gains priced in for the Nov ’18 contract (vs. the index released in Nov’ 17) but then fall to ~1% in 2022, while the Pulsenomics survey of expectations tapers off to about 3%.

Now I appreciate that there are differences between Case Shiller and Zillow indices, and that the Zillow survey represents contributions from around May -while the CME prices are today, and finally that CME bar chart values are comparisons of the CME quotes on the November expiration cycles (thus referencing the September Case Shiller index) while the Pulsenomics survey is for year-end index estimates.  That all said, the observation that longer-dated CME contracts appear to be priced at levels that are much less bullish that the survey results of 100+ economists, seems valid.

I’ve spent the last few months wondering if there is a technical issue driving this, or do longer-dated CME contracts represent a good risk/reward versus expectations, or is there some other factor.  I offer no concrete views, but here are a few things worth considering:

  1. There are few parties involved in the CME futures.  I’m often on both sides of many markets.  The prices I’m willing to buy/sell could be “wrong” (air quotes).
  2. The vast majority of inquiries I receive (or where I’m asked to trade) typically involve individuals looking to hedge.  Thus in the small world of CME trades that have existed over the last few years, it may be that the capital looking to be deployed on the sell side is larger than the capital I’ve been willing to deploy on the buy side.  As with #1, the arrival in this market of a large participant on either side might move prices up (or down).
  3. The markets could be turning (as many have long touted).  Toronto and Sydney -two previously frothy markets -have both turned lower.
  4. Does having “skin in the game” (i.e. traders with positions) allow for different result from surveys?

Markets are wonderful platforms for traders to observe, debate and actually trade.  Trading tends to increase when markets turn, or when there are stronger differences of opinion.  Is this one of those times?  Are longer-dated contracts distorted by an imbalance of hedgers, or do longer-dated contracts represent an opportunity to “lock in” lower than historical gains?  Will rising rates, and/or inflation, be kind or harmful to home prices?  Should surveys or markets guide forecasts (or both)?

Please join what looks like an ever-more vigorous debate.  Feel free to contact me ( if you have any questions about this blog, or any aspect of hedging home price indices.

Thanks,  John




Recap of activity in CME Case Shiller futures for July

I just posted an 18-page recap of (the very limited) activity in the CME Case Shiller futures for the month of July.  There are pages with tables of recent outright prices, and price changes,  calendar and intercity spread quotes, indicative option prices, and volume and open interest (OI) figures.   The recap can be found in the Reports section (along with some background material and historical reports) or can be linked here.

The key points from July report include:

–There were 5 futures contracts traded in July in 2 regions (DEN and SFR) across 3 expirations.   (4 of the 5 trades were in SFR contracts).   Volume has been very low for the last 12 months, but with more commentary on social media about a bubble, and ever-tighter bid/ask spreads, I remain optimistic that trading volume will increase dramatically.

– There were no options trades.   The recap has a page showing where I’d be open to buying/selling puts on one-year forward, at-the money strikes (but recall that any options -both puts and calls -can be arranged for any region, for any expiration, on any 5-point interval).  I’d be happy to respond to any option inquiry and/or to tout any “trading axe” that a reader wants to share.

–Despite low volume, activity (third parties bidding and offering) picked up, especially in SFR.  The SFRX22 contract had at least 3 parties bidding and offering, and was quoted much of the month with <3 point bid/ask spread.

–For July, bids and offers were higher across many regions (except DEN, NYM,  and SDG).

–There were 2-sided quotes in all 121 contracts, for most of July.  While most quotes are 1×1 (one lot bid vs one lot offered), I’m open to facilitating retail-sized inquiries (up to 10 lots) in any contract.  (A benefit of two-side trades is the resulting graphs showing YOY implied price changes).  I’m preparing a blog for later this week detailing observations on forward implied YOY price gains/HPA, with a focus on opportunities in calendar spreads.

–Bid/ask spreads tightened slightly across all expirations.  Spreads on the front contract (Aug ’18) are just over 1.0 point (about normal with one month to run), while bid/ask spreads on the Nov ’18 contract (which has been my benchmark contract for the last year) are tight at 2.0 points.  The CUS, DEN, and SFR contracts have the tightest bid/ask by region due to recent trades and interest from other traders.  By contrast, LAX, SDG and WDC (all regions with low OI) have the widest bid/ask spreads.

–OI on futures rose from 39 to 44.  There are three regions (BOS, MIA and WDC with no OI.  I’d be eager to accommodate any trade in those regions.)

–Home price index futures for Paris are still on schedule to be rolled out this fall.  Key to the Paris contracts is much more narrowly defined geographic reference region.  See tab “Paris Futures” for more details.

–I’ve received inquiries on hedging Seattle risk, which since not listed on the CME will require an OTC trade.  Seattle presents an interesting trading opportunity as it’s had some of the highest home price gains, but some worry about a bubble.  I’m looking for OTC counterparties for either forward or option OTC trades.

–Additionally, with so much interest in SFR, I’d like to hear from any looking to engage in an SFR options trade (put/call –either side.

Please feel free to contact me ( if you have any questions on this blog, or any aspect of hedging home price index risk.

Thanks,  John


CME markets post Case Shiller #’s

Quotes on CME Case Shiller home price index futures are slightly lower after this morning’s release of index values for the period ending May.    The table below highlights changes from yesterday across the X19 (Nov 2019) expirations.  Note (in Mid-Mid change line) that the LAX and NYM futures are about 1 point lower, while the LAV and WDC contracts are slightly higher.   (Note that last month’s NYM #’s were revised higher.)

While bid/ask spreads on Nov ’19 contract are relatively wide (this being the first month I’ve used it as the benchmark contract) bid/ask spreads on the front contract (Aug. 2018) narrowed to 1.3 points (across the 11 regions) -about average with one month to expiration, and the average spread on Nov ’18 contract is 2.0 points.

Net (across all 121 contracts) bids are down ~35 points, in aggregate (so on average about 1/4 point per contract) while offers are lower by ~14 points.

July has been a relatively quiet month with only 5 trades.  No trades (as of 11:30 AM) post today’s Case Shiller #’s.

Please feel free to contact me ( if you have any questions about this blog, or any aspect of hedging home price indices.

Thanks, John




Futures can also be used by buyers to hedge -San Fran story

An excellent piece of research by Paragon RE on the San Francisco housing market and a tweet by one of my favorite journalists (Mike Rosenberg at the Seattle Times -see tweet here ) prompted me to air the idea of using the SFR (San Francisco area) Case Shiller home price futures as a potential hedge against runaway home prices in San Francisco, for those on the sidelines watching 10% year-on-year gains.

To recap, futures allow a user to lock in a price (long or short) on a contract that will settle on the Case Shiller SFR index value at some point in the future.  While there has been near no volume, there have been a few trades over the last few weeks in the longest-dated SFR contract (the X22 contract that expires in Nov 2022).  Today, that market was quoted 287.0/290.0, and the spot index for the Case Shiller SFR index is 264.29.   (Contract notional values are $250* point, so ~ $72,000/contract at 288.)  Such pricing may be informative -if only to viewers/not traders -as the contracts “cash settle” on the SFR index value in Nov 2022.   That is, purely as an illustration, if someone bought a contract at 290, and the index settled in (Nov 2022) at 300 (about 13.3% gain over 4+ years) the buyer would have gained $2,500/contract (before any fees).  If index levels were unchanged (i.e. at 264.29) at expiration, a seller at 287 would get about $5,750.  (Note that there may be many reasons why people buy/sell and contract prices might vary substantially prior to settlement- beyond even these examples, but eventually -as contract expiration approaches -they must converge.)

I share the illustration not to encourage speculation, but to note to viewers, that the quotes are not merely opinions, or forecasts based on past history, but levels were users are willing to back up their exposure with money.   While SFR prices have been screaming higher, these CME prices are consistent with continued home price gains, but at a slowing rate.

Futures (despite some negative press) may be useful tools for investors to consider if have more or less exposure to the commodity (in this case San Francisco home prices) than they care.  While much as been written about homeowners looking for ideas to protect against a decline in home prices, those looking to buy homes in the future might also consider looking at futures if they want to add to their San Francisco exposure today.

Bids on the SFRX22 (Nov 2022 expiration) contract are consistent with gains of 8.6% (cumulative over the next 4+ years) while the offer is consistent with gains of 9.7%.  Someone expecting, or fearful of, or negatively exposed to,  6-10% gains in home prices across San Francisco over the next few years (so 25-40% gains over 4+ years), might consider learning more about these futures.  As an example, someone in Dec 2016 looking to buy in San Fran in Nov 2018, could’ve bought SFRX18 (Nov 2018 expiration) contracts at 241.2.  The gains from a purchase of those contracts (which today were bid 270.6) would have offset a portion of higher prices they now face.  A future buyer of a home in San Francisco, might be able to reduce some of the risk of prices running up 10+% for the next few years, with prudent hedging.

Now there are number of qualifiers (that include more than these) that this is now financial advice, that you should talk to your own broker about any decisions involving futures, that the markets are very thinly traded (so don’t use market orders), that markets may be volatile, and/or not even quoted in the future.  That said, anyone looking to learn more should feel free to review the material in the Reports section on this website, or  contact me ( if they have any questions on these products, or if they’re interested in trading.

Thanks, John

Recap of June CME Case Shiller Futures -June 2018

A recap of activity in the CME Case Shiller home price index futures has been posted to the Reports section.  You can click here to access.  The recap includes end-of-month prices, and price changes for the last month, tables on volume, open interest, intercity spread and calendar spread markets, as well as suggested one-year put option quotes.

Additionally, a few new pages have been added to the Reports section to include: Volume in Case Shiller futures since 2006, Open Interest since 2006, and graphs linking historical Case Shiller data with contract prices, for each of the 11 regions.  In addition, the mid-June regional review had suggested option pricing for multiple strikes and expirations by region.

Here are the key point from the recap:

–There were 15 futures contracts traded in June in 3 regions (DEN, LAV, and SFR) across 5 expirations.  There were no options trades.

–Activity picked up with especially in SFR with 9 trades and the tightest bid/ask spreads.  The SFRX22 contract was quoted much of the month with <3 point bid/ask spread.

–For June, bids and offers were higher across many regions (except NYM, which fell ~2 points).  Much of the move took place after CS #’s were released on June 26th.

–For the first time in a few years, there were 2-sided quotes in all 121 contracts.

–Bid/ask spreads widened slightly across all expirations.

–Longer-dated contract bids rose, raising implied HPAs, albeit from still very low prior levels.

–OI on futures rose to 39.  There are three regions (BOS, MIA and WDC with no OI.)

–Home price index futures contract for Paris to be rolled out this fall.

–I’ve received inquiries on hedging Seattle risk.  Looking for OTC counterparties.

–Added to Reports website section – Vol/OI since 2006, price graphs on all contracts

Please feel free to contact me ( if you have any questions on this recap, or any aspect of hedging home price index risk.

Thanks,  John

CME Markets post today’s Case Shiller #’s

Quotes on the CME Case Shiller home price futures contracts were generally higher after this morning’s release of the Case Shiller numbers for April.  The table below highlights prices from near the close yesterday versus early this morning.  There are three key highlights;

  1. Average mid-market prices rose by 0.4 for the Nov ’18 contracts. (see right side of table).  Across the 121 contracts prices rose, on average, by about  1.0 point with bigger gains concentrated in longer-dated expirations.
  2. While prices are higher this morning, there are outliers -most notably NYM, which is down more than 2.0 points, and LAV which is up more than 2.0 points. (Note that there were 3 LAV trades late yesterday with offers lifted, that may have contributed to higher prices.)
  3. Bid/ask spreads are wider on the day (see lower right).  This is typical of the first few hours post the release of Case Shiller #’s.  Look for bid/ask spreads to contract as other users check markets, and as month-end nears.

Note that there have been 14 trades this month.  Activity has been concentrated in LAV and SFR regions with 3 and 9 trades in each region.  Unlike past months, activity has been spread across the expirations with trades in both the Aug ’18 contracts (2) as well as the longest Nov ’22 contracts (3).

Please feel free to contact me ( if you have any questions on this blog, hedging of home price indices in general, or have any trade ideas that you’d like to discuss.

Thanks, John


Regional review posted

I’ve posted a set of tables and graphs for the 11 CME regions (the 10-city index and the 10 components).   You can find it in the Reports section, or link here.

The HCI (10-city index) package is shown below and is organized with:

  • A table (upper left) of recent quotes on each of the 11 expirations.   Prices are converted into percentages versus spot index levels,
  • A graph (upper right) showing quotes on the same graph as the historical Case Shiller index (in black).  Note that the slope is positive, consistent with higher index levels,
  • A graph (lower right) that compares YOY changes in the Case Shiller index versus bids and offers from calendar spreads.  This graph illustrates that forward YOY prices might be consistent with declining, but still positive HPA expectations.
  • Sets of tables (lower left) with suggested offering levels on a variety of puts and calls.

Feel free to contact me ( if you have any questions on this blog, or any other aspect of hedging home price indices.