This morning’s monthly release of Case Shiller indices has been followed with a modest (net) mark-down of quotes on the CME home price index futures. As highlighted in the table below, index values tended to be lower than mid-market level on the expiring Nov ’18 (X18) contract. For example, the LAX and SDG indices (in red) were well below contract bids, while the BOS, DEN, and WDC index values (in yellow) were just under the bid side. Only the NYM index was higher than the offered side of the NYMX18 contract, but there was a 0.60 upward revision in last month’s NYM index that seems to have contributed to this upward “surprise”.
Note toward the bottom of the table that the mid-market levels did a relatively good job in projecting YOY differences. The YOY gains for the LAX, NYM and SDG index values were the only ones more than 0.2% away from the mid-market contract levels. (This, and the small number of big “surprises” (i.e. LAX, NYM and SDG) should be no surprise as all of the activity backing the data on Case Shiller index calculations took place before Sept. 30th.)
Finally, note (at the bottom of the table) that YOY gains have been plunging for most regions (with the already slow CHI and WDC being the exceptions). Some YOY price differences between closes on selected longer-dated contracts (e.g. Nov 20 vs Nov 22) are now almost zero.
Prices on (my) benchmark Nov ’19 contracts reflect the negative surprises. The table below shows quotes on the Nov ’19 contracts before and after (around noon today, so not live) across the 11 regional contracts. The changes in the LAX and SDG contracts (highlighted in red) stand out from the slight declines in 7 of the other 9 contracts. Consistent with the comments above, the NYM contract (and LAV) is higher. Bid/ask spreads across the 90 contracts with 2-sided markets, average about 1/3rd point wider.
Finally, with the expiration of the Nov 2018 contract, the CME has opened a Nov 2023 contract. I’ll fill out some quotes by month-end, but my focus (and suggestion) is to channel any interest in longer-term exposure to the X20 and X22 expirations.
Feel free to contact me (email@example.com) if you have any questions about this blog, or any aspect of hedging home price index exposures.