Baiscs: CUS (10-city) Calendar Spreads

I had promised in the monthly recap for February to update a table of the HCI/CUS (10-city index) calendar spreads for the November expiration series.  Here you go.

Understanding calendar spreads is critical to trading housing futures, as the spreads a) serve as a great tool for expressing views on forward HPA, and b) can be used to populate bids and offers in multiple contracts with a much smaller set of outright bids and offers.   For those just viewing contracts, calendar spreads may be useful as a tool for deriving, real-time,  publicly priced,  market-implied forward HPA.

CUS Calendar Mar 5The table shows recent outright levels for the HCI contract for each of the five November expirations (from Nov 2014-18), along with the ten calendar spreads that one can create among these contracts.  The calendar spread quotes (bids in orange, offers in green) are translated into percent increases versus the mid-market value of the front contract. For example, the -11.4 bid for the HCIX14/X15 spread is the equivalent of buying X14 at 191.8 while selling X15 11.4 points higher (recall that the CME quotes front contract versus back) or at 203.2.  The ratio of 203.2/191.8 = 1.059 or X15 5.9% higher than X14.  By comparison, the -8.4 offer translates into a 4.4% premium.

(Note that as shown here, all calendar spread bids and offers are inside levels of an outright bid and offer.  The “best” market is the X15/X16 market of -8.8/-7.0 which is inside levels that a trader would be able to achieve by outright buys and sales.)

Most of the time the calendar spread bids and offers bracket the mid-to-mid-market percent differences -and in that sense can be viewed as bracketing the debate on HPA.  The percent changes (all increases in this environment) for bids, offers, and mid-to-mids are shown on the right side of the table for all ten calendar spreads.

Calendar spreads can be (and are) used for any expiration, and/or for any region.  I’ve only shown these ten spreads for illustration, and I’ve used YOY changes to avoid seasonality issues.

The HCI table shows numbers that are consistent with forward HPA (for the HCI/CUS contract) of ~4.5-6.0% between Nov ’14 and ’15, with HPA falling slowly as you move to longer expirations.  Not surprisingly, some regions (components of the 10-city index) have higher implied HPA (e.g. SFR) while others are lower (e.g. LAX).

Calendar spreads tend to change more slowly than outright markets so orders can (sometimes) be left longer or placed at tighter levels.

If anyone has any questions related this table, or would like to see some other calendar spread or region touted, please contact me at