I'm introducing new OTC options agreements on Case Shiller home price indices. The purpose of this program is to provide a hedging instrument against declines in home price indices, over a relatively short horizon (i.e. <2 years) that does not require the sale of the house to monetize gains. The agreements will be similar to the products that the CME stopped trading (e.g. cash settle) but will provide a cap on coverage. Keywords: bear, housing, real estate, crash, forbearance, foreclosure, options, puts, calls.
Quotes on the CME Case Shiller home price index futures have been moving higher, but on very limited volume. Home Price fundamentals (e.g. low inventory, low mortgage rates, increased wealth as stock market rallies) remain strong. Uncertainty (e.g. who will be the President, whether a vaccine will be created, COVID relief, and rules about forbearance) should all be more clarified in the next 30-45 days. All such themes seem to support higher home prices.
Prices on CME Case Shiller home price index futures rose in September, particularly in the two front contracts- Nov '20 (X20) and Feb '21 (G21). In addition there were many fewer quotes, and bid/ask spreads on the remaining markets were much wider. test Test Test
I've posted a recap of activity in the CME Case Shiller home price index contracts for August. The rolling 12-month volume exceeded 300 for the first time in > 5 years. Prices were higher and bid/ask spread contracted.
Expressing a view of the likely performance of one city versus another needs to incorporate the notions that : a) there may already be markets where home price index risk clears, and b) that those levels can vary from city to city. I illustrate an example using the 20 public Case Shiller indices, but the same can be done with any other top 50 city.
Case Shiller indices released this morning were lower than the bid side of the expired Aug '20 contract. These "surprises" have led to lower quotes on the benchmark Feb '21 home price index contracts. #homeprices #realestate
I've fleshed out details on how I would structure HPHF agreements, that would allow a user to go long an index on home prices for one city, while shorting the index on another, to express a view on expected relative performance over some fixed time frame.
Any debating where home prices will shake out for 2020 might consider both CME Case Shiller home price index futures, as well as HPHF Relative Performance Agreement levels. Pricing suggests that despite Covid, there are few bargains (i.e. contracts trading lower than last year-end's index values -other than CHI and LAV) and both the CME contracts, as well as HPHF RP Agreements suggest (today) that home price indices will be slightly higher on a YOY basis, across many of the 20 public Case Shiller indices.
Both home price bulls and bears will be right, if they get to define the measurement period. Longer-term, CME Case Shiller home price index futures are priced consistent with a relatively flat market over longer periods (such as year-end 2019 to year-end 2022).
CME Case Shiller home price futures, one-year forward, are offered a discount to spot. Are home prices headed lower after this summer selling season.
There seems to be growing uncertainty in how Portland and Seattle prices might be impacted by recent developments. HPHF Agreements might be one way to express a view on future home price index levels (or changes relative to a more national market).
Viewers looking for a sense of where home prices might be headed might be better served looking at CME Case Shiller futures, that on YOY changes to the Case Shiller index.
The front-contract CME Case Shiller home price index futures completed a more than 100% reversal from the March/April selloff in June. Longer contracts have also rallied but still trade at discounts to spot.
CME Case Shiller futures are higher today (June 30th) after the release of updated index values. My sense is that most of the gain is a contraction of the forward discount that contracts often trade to versus expectations.
The real estate market seems to be hoping that, for 2020, the spring selling season will get pushed to the summer. One way to express a view on home prices for summer 2020 (outright or relative to spring 2020) is the CME Case Shiller X20 (Nov 2020) contract.
Home Price index futures are back to levels last seen in February 2020. The blog offers ideas on hedging components of the Case Shiller 10-city index, as well as (via HPHF swaps) the "other ten" cities in the Case Shiller 20-city index, as well as other larger cities where price histories have correlated with the CS-10 index.
The May 2020 (K20) Case Shiller home price futures contracts expire on Friday. Bid/Ask spreads are still historically wide due to uncertainty of the impact of the COVID virus on housing activity during March.
I've posted ideas on how one might one hedge the performance of Dallas home prices, relative to a more national index.
HPHF Relative Performance Agreements both allow users to express a view on the forward performance of one regional index versus the Case Shiller 10-city index, but are also the foundation for hedging absolute price risk on cities not referenced by CME contracts.
Do you think home prices will be higher 5 years from now? If so, longer-expiration CME Case Shiller futures might be worth your attention.
Using HCI21 contract (for Absolute Price Moves) and Intercity Spread quotes (for Relative Price Performance Pricing) can be used to generate quotes in regional markets.
Trading CME Case Shiller futures involves at least two dimensions -outright price levels, and the path of home price recovery. Different tools are appropriate for each decision.
I provide a stand-alone blog to capture different themes supporting my view that CME Case Shiller home price index futures clear below expectations.
Given the change in CME Case Shiller home price index contracts, it's time to review the basics of a long home-price hedge.
Here's a recap of activity in the CME S&P Case Shiller home price index futures during March
Activity in the CME Case Shiller home price index contracts, with a focus on the last week.
Convergence gives credibility to CME Case Shiller contracts having some element of expectations. Here's what the contracts are "saying" on six regions.
Prices on the CME S&P Case Shiller home price index contracts have fallen dramatically over the last month. Attached are a series of graphs to show how much.
Housing derivatives can be useful for sharing either expectations for forward home prices, or in disclosing where risk might clear. Help is needed from this community to build depth in the Feb 2021 CME Case Shiller futures.
Intercity Spreads are a useful tool when trading CME Case Shiller home price index futures. IC trades allow users to see, or express views on, relative performance between two regions, or more often, a regional contact and the 10-city index.
Why only incorporate backward-looking data into home price forecasting when there's a public market on forward home prices?
The Feb 2020 (G20) CME Case Shiller home price index contract will cease trading at 3 PM today. Settlement will be based on the CS index numbers released Tues at 9 AM. The CME will then open a new May 21 (G21) contract, and I will also start populating quotes in the dormant Aug 2020 (Q20) contract.
Users can express views on relative value via Intercity ("IC") spread quotes. About half of the CME contracts are priced for gains above the 10-city index (e.g. BOS, WDC, DEN and LAV) while half are priced for under-performance (e.g. CHI, LAX, NYM, SFR).
CME Case Shiller futures were quoted modestly higher today, after the release of indicies that tallied activity through November. The BOS and WDC contracts saw the highest gains, while the NYM and SFR contracts declined.
With the CME announced change in expiration schedule, users may have concerns about open positions in the Nov 2022 (X22) contracts, as well as how to trade over the next two weeks -until new longer-dated expirations are open. This blog addresses both concerns.
CME Calendar Spreads may be useful for either expressing a view on HPA, for 2020, across ten regions.
Market can complement historical analysis and forecasts to help users form their outlook. The CME Case Shiller calendar spread markets might be a useful tool for forming views on where home prices are headed in 2020.
An illustration of how users might hedge if they are worried about negative forecasts on home prices.
Home Prices may be impacted by mortgage rates and the stock market, but there are times when home price futures contracts don't seem to react. This may be one of those periods.
I've posted a summary of activity in the CME S&P Case Shiller home price index contracts for November. YTD volume is the highest in 5 years (although only a tiny fraction) of where is could/should be.
Today's Case Shiller indices included four "surprises", at least relative to users of the CME S&P Case Shiller futures. The BOS, CHI and SFR index values were below bid sides of the expiring Nov 2019 contracts, while the LAX index was above the offered side. Nov 2020 contracts referencing those indices moved in the direction of surprises, but in aggregate prices are about unchanged.
The Nov 2019 CME S&P Case Shiller home price index futures expire next week. Contract prices have converged with index values, and bid/ask spreads on the expiring Nov '19 contracts average <1.0 point.
I'll be attending next week's AEI Housing conference in NYC (Nov 12) and would be happy to arrange 1:1 meetings to discuss home price index hedging options.
A recap of activity in the CME S&P Case Shiller home price index contracts is available here. Prices were mixed, while 19 lots traded, in a very quiet market (at least versus stocks).
CME Case Shiller futures are lower after the release of the monthly home price indices. All contracts are flat to lower, except MIA.
Those with exposure to home prices (e.g. investors, builders, flippers, future buyers/ Millennials, retirees looking to downsize, people looking to move) might benefit from hedging. This blog describes a platform (Home Price Hedging Fund #HPHF) that with proposed quotes on OTC home price index agreements.
Case Shiller home price index forecasts for 2019 and 2020 can be viewed vs CME futures and calendar spreads. Housing derivatives might be useful for real estate analysis and hedging.
The blog takes a different look at my theory that CME S&P Case Shiller home price index futures might be clearing at discounted prices to expectations.
A recap has been posted of trading in the CME S&P Case Shiller home price index contracts. It was a slightly busier month with 18 contracts traded, but prices, spreads, did not move much.
Longer-dated CME Case Shiller home price index futures appear to have a core bias (reflecting an imbalance between natural longs and shorts) that might be of interest to speculators from the long side. I offer my rationale, and two ways to trade the conclusion.
Recap of activity in CME Case Shiller home price index futures for August
Case Shiller index results were weaker than expected by recent CME contract prices.
Affordability measures become more sensitive when interest rates are very low.
Activity in the S&P Case Shiller home price index agreements was quiet during July. I've posted 20-page recap of activity on the CME, and my efforts to generate interest in OTC trades. #realestate, #housingderivatives, #homeprices, #CME, #caseshiller
Canadian home price index hedging seems possible using the same HPHF approach I've tried to use on US cities. Canadian index values, and home prices, present unique challenges as some prices are already headed lower, are more volatile, and are impacted by political forces beyond supply and demand.
CME Case Shiller price moves over the last year suggest that there are trading opportunities both as to outright home price index levels, as well as between regions.
AEI has raised the bar home price forecasting by providing housing data in a free, centralized platform.
While CME futures allow readers of Fitch housing outlook to express forward views on home prices in some regions, this "Part 2" blog shows how they might express views on the other ten cities (or many more) using an OTC housing derivatives.
A recent Fitch report says that Las Vegas is the most over-valued city (of 20 citied). CME Case Shiller home price index futures (housing derivatives) allow users a way to express their support (or not) of Fitch's views.
Zillow say home prices have peaked in 14 large cities. Would you like to sell any of them (including some where forward home price derivative markets trade at a premium to spot)?
Here's a recap of activity in the CME Case Shiller home price index futures and options for May 2019. A quiet month both as to volume and price changes.
Today's Case Shiller home price indices produced five "surprises" (defined as situations where index values were outside the bid/ask spread on the expiring CME Case Shiller futures contracts. Longer-dated contract prices are higher today in 9 of 11 regions.
Tariffs will likely impact the economies of port cities with repercussions to employment and home prices. I've posted quotes for 4 CME contracts and 4 OTC home price index agreements, to prompt discussion on the question of how much home prices might be impacted.
Should Boston home price futures markets trade at such a premium to spot -versus where NYM is offered. A review of the strongest and the weakest of the ten CME S&P Case Shiller regional contracts that share much expect forward outlook.
Volatility seems to drive volume higher in home price derivatives.
Yes, I’m going to pile on to social media efforts to capitalize on Super Bowl interest. Of course what I have in mind is here is getting readers to debate which side they prefer of the current pricing that has the CME Case Shiller BOS contracts outperforming the LAX contract (using the X20/ Nov 2020 expiration) by 2 (percentage) points. In addition I want to illustrate how one might look at intercity spreads, to new readers.