6 month perspective: Price changes Oct to April

With the release of the April Case Shiller #’s almost upon us (Tuesday April 29th), with the increasingly bearish tilt in some housing forecasts, and with the (OK a personal)  perspective of having snow in my yard in both October and April this year, I thought that it might be interesting to compare how quotes for the CME home price index futures have changed over a ~6 month time frame.  Besides, traders need a scorecard for next week.

The graph to the right Sum April v Octshows the prices (and change in prices) for the HCI (10-city index) contracts between Oct. 31 and mid-day April 24th.  Changes for the Q15 and X18 contracts that were introduced subsequent to Oct 31 are not shown.  Also changes in the X13 and G14 contracts between Oct 31 and each contract’s expiration are also not shown.

The Oct* and Mar* columns show the CS index levels (in the month that they were released!) and summary changes by region and contract are show the far right.  (A table with changes for all 11 regions is included in the Reports section or one can link to it here.)

Here’s some summary highlights (but before reviewing, I’d like to thank all of the traders that helped in this effort):

  • Bids are higher for all regions (although barely so in NYM).  As 9 expirations are tallied here (or 99  contracts) bids are up about 4 points on average across the 11 regions (392/99).   The biggest increases have been in MIA and SFR – two contracts continuing to show strong index growth (see Oct*/Mar* columns)
  • Bids are higher even though for some contracts (e.g. CHI) index levels have fallen.  (There is a bit of an apples and oranges comparison as seasonality may play a large role in certain regions, particularly those in the North).
  • With a further qualifier to seasonal factors, some contracts (e.g. WDC) have rallied even though index levels are almost flat, while other contracts (e.g. LAV) have stalled, while index levels are up more.
  • Offered levels have either not moved up as much as bids (thereby causing bid/ask spreads to tighten) or in some cases actually fell. Of note is the lower offers in both the LAX and SFR contracts (as well as unchanged offers for SDG).  Longer-dated California regional offers were much too high last summer and as forward HPA projections have come in, longer-dated California offers have fallen.  In addition to the LAX and SFR regions, the CHI contracts also have both higher bids and lower offers.
  • The compression in bid/ask spreads is noticeable across multiple expirations.  While there seems to have been an effort made to address the wider bid/ask spreads that typically occur in the May (K) contracts, the August (Q14) contract needs help.
  • While NYM region looks like an outlier, the NYM contracts were some of the tightest bid/ask spreads back in October.  In fact the Aug ’15/ Nov ’15/ May ’16 NYM contracts still remain some of the tightest bid/ask spreads despite the absence of spread tightening.  By contrast, the WDC contracts continue to have the widest bid/ask spreads, despite slight contraction in bid/ask levels.

I try to remain agnostic on forecasts, but my key takeaway is that bids have been moving higher even as there’s been more (but not universal) bearish calls coming from selected bloggers.  As market maker (and fan of this product) I just hope that some of those bearish analysts find their way to this site.  If bids keep rising and analysts keep getting more bearish, the likelihood of a trade is rising.

Feel free to contact me if you have any questions (johnhdolan@homepricefutures.com) or I’ll see you Tuesday.