It seems incongruous that the only CME Case Shiller home price index contract that doesn’t have any OI (open interest) is LAV (Las Vegas). After all LAV is the mecca for placing bets on many events, yet there’s been no “action” on LAV. One might expect future LAV prices to be debated as: the NFL is moving there, the economy probably has a high beta to changes in the economy, home prices remain so far below the levels seen at the peak, and environmentalists fret about longer-term water supplies.
The graph below shows forward levels that are consistent with rising (but slowing) HPA. LAV contract prices have risen since Dec ’15 (orange diamonds) and Dec ’16 (green squares). I’ve sharpened my pencil to tighten bid/ask spreads (with a focus on X17, X18) to see whether that might prompt a trade.
I’d note that implied YOY % price gains of LAV forward prices are a tad stronger than the CUS 10-city index contract. For example LAVX18 is quoted 170.2/172.2 or 4.8/6.1% above spot levels while the CUS contract is 222.4/224.2 or 4.0/4.8% above spot. There is an intercity spread market for CUS/LAVX18 that might be worth exploring, if someone would like to make a relative value statement. I’m also open to hearing any thoughts on calendar spreads (e.g. X18 vs. longer dated contracts) if someone would like to debate the pace of HPA in future years.
Since OI=0, I don’t have any ax in LAV, other than to present a list of contracts where every region has OI. I could use your help on LAV.
Feel free to contact me (firstname.lastname@example.org) if you have any questions about this blog or any other aspect of hedging home prices.