Observations from past home price declines -how they might impact CME Case Shiller futures today.

I’ve compiled a table of home price changes over the last two large downturns (the post S&L crises, and Great Recession), and the current cycle, that should be of interest to people trading home price indices today.  I’ve also posed some questions (below) that people trading CME futures, or academics looking for ideas on research papers, might consider.  Now, I’m not saying that home prices are headed lower (although several contracts are inverted, i.e. with lower forward prices than spot), but if the market does turn lower, past home price declines might shed some light on how the next downturn might play out.

The table shows the Case Shiller SA (seasonally-adjusted) numbers for three cycles: 1987-1993, 2000-2012, and 2011 to today.^1    (Note that the dates are the end of the reference period, not the month the index was released.  As such, the most recent month is October 2018.  Also, note-I realize that the font size in the table is small.  A copy of the table has been posted in the Reports section, which can be accessed here.).

The table is divided into two sections: at the top are the eleven areas that have contracts that are traded on the CME (the 10-city index and the ten component regions), and then, below them,  the ten other areas that make up the Case Shiller 20-city index (that would have to be traded OTC).  I’ve shown the minimum, maximum and subsequent minimum value for each index over each cycle.  I’ve then calculated the percentage gain during the rally, and the subsequent percentage loss on the declines.

I’ve also shown the length of each up and down cycle denominated in months.  Note that several CS indices (in the “other 10”) were not introduced until after Feb. 1987, so the percentage gains, as well as the length of the rally,  may not reflect home price moves over a cycle comparable to other indices.  I’ve italicized those results as the CS time series didn’t all start in Feb 1987.  Note also, that that there wasn’t a CS index for Dallas for the first cycle.

I’ve further highlighted the top four largest percentage price gains and declines after the peak of each cycle (with the biggest gains in green and the biggest declines in red).   (Note that only 3 of the 21 indices have a peak date other than the most recent coverage period, i.e. Oct 2018).

I’ve included a column (in grey) that shows the % difference between the peak value in the current cycle, with the highest value in the 2000-2012 series.

Finally, I’ve added (in yellow to the right) the mid-market value of the CME X20 (Nov 2020) contract vs. the spot index value.  Here I’ve highlighted the two contracts that are quoted at the highest (percentage) value versus spot (so, BOS, LAV, with DEN close behind) and the two contracts with the lowest value versus spot (so SDG and SFR, with CHI and LAX just below).  Note that the SDG and SFR contracts are down even more from the peak in prices in this cycle, as spot levels are already below peak prices.)


What to make of all of this?  I’ll offer some points here, and more in follow-up blogs, but would be thrilled if others weigh in with comments to my email address (which I might incorporate into future blogs).

  • The 1987-1993 home price downturn did not impact every region.  That is, many regions (at least 9 of 21) saw prices increase right up through Jan. 1993 (the end of my measurement period).  That prompts the question as to whether a future downturn will be large enough to hit all areas (as it did in 2006-2012), or small enough to only hit selected areas that may suffer from local issues.  Incumbent in that question is whether there are large forces in place that will drag all markets down (e.g. a spike in interest rates), or only certain markets for selected reasons (e.g. reduction in deductibility of SALT), population shifts, decline in local wealth (e.g. Silicon Valley), and/or affordability.  Will fear of seeing price declines in one area, prompt users to hedge in their area?  Net, there should be lots of opportunities to debate relative forward outlooks via inter-city spread trades.
  • The peak in prices in the first cycle (of those that saw a decline by Jan 1993) varied from May 1988 (in New York) to Sept 1991 (in Las Vegas).    The same was true for the second cycle where BOS peaked in Nov 2005, but Charlotte didn’t top out until Aug 2007.  As such, one question (related to the above) is whether the declines that we’ve started to observe could be unique to those areas, or precursors to drops in other areas .
  • For those areas that did see downturns, the period until prices hit bottom was drawn out (in both cycles).  Bottoms were even more spread out across regions with Denver hitting bottom in Nov 2009 (after selling off <12%) while 3 areas waiting until March 2012.  Downturns averaged about 2/3rds of the time measured (since Jan 2000) but the rallies would be even longer (and bigger) from the absolute bottom in prices.  (I may go back to start middle series at past low in next iteration).  These points might impact shapes of forward curves on CME futures.  That is, if there are price declines in 2019 (and if they are relatively small) when might we see prices later pick up.  This may play out in calendar spreads for 2021-23.
  • Those areas that saw the greatest increase in prices (in 2006-2012), also saw the greatest collapse.^2 
  • Those that saw the greatest decline in the 2000-2012 period have been some of the best performers this cycle (going from just being oversold, or something else?).  Examples include Las Vegas (+109.6%), Miami (71.8%), Phoenix (87.3%).  What factors drove those markets higher in the last cycle, and how likely will those factors be replicated in this cycle (even assuming that a decline has begun).
  • While some areas are up sharply off the prior lows, they have not gone far past the prior peak  For example, Tampa and Los Angeles are up ~70-75% from the lows, but below prior peaks.  By contrast, Chicago, Las Vegas, Miami and Phoenix are still below past highs, while Denver and Dallas are up about 50%.  How much should gains over past highs factor into forecasting possible future selloffs?  Will homeowners in the area with large gains be more prone to hedge (and less concerned about execution price) than those who’ve seen much smaller gains this cycle (e.g. New York, Cleveland).
  • The West Coast includes three cities that have already come off their highs in this cycle: San Diego, San Francisco, and Seattle, as well as the regions with some of the largest gains (e.g. Los Angeles +~75%, San Diego +~70%, San Francisco +~109%, Portland +77.3%, and Seattle +91.8%.  Was there a China/Asian effect in play (particularly once Vancouver started taxing foreigners?)  Will these areas be disproportionately impacted if the Chinese economy slows?  What other factors may have driven California home prices to such highs (and are those reversible)?  What should be the impact on volatility assumptions for options -both outright and relative to other regions?
  • Some areas that came through the 1987-1993 cycle unscathed (possibly due to population inflows?) -e.g. Miami, Las Vegas, Phoenix – were the worst performers in the Great Recession cycle. Some have argued that these were areas where sub-prime lending had a large effect.  Without subprime lending today (but not ignoring FHA’s role) are these areas likely to perform better this time?

All of the above topics are of interest to me in quoting CME futures and OTC trades.

Trading in CME futures has historically picked up when markets turn (e.g. 2006-2007 and 2012) so I’m hopeful that we’ll see it this cycle.  I can’t think of a better public, pure-play for financially expressing a view on forward home prices, than the CME futures and options contracts.    That said, given the curve inversions, and volatility of certain regions (most notably on the West Coast) I expect current traders (including me) to be more defensive as the current situation evolves.  This market will need more involvement – particularly from the long side – to avoid becoming overly one-sided (e.g. all hedgers looking to sell at the same time).   CME prices are currently consistent with HPA gains several percentage points below those expressed in surveys and home price forecasts.  There may be an opportunity for those with such views (and their readers) to add home price exposure, at what they might argue, are attractive levels.

Please feel free to contact me (johnhdolan@homepricefutures.com) if you’d like to discuss any aspect of this blog, or have any questions on hedging home price indices.







^1 I don’t often used the SA series, but I wanted to pick out highs and lows, and was worried that seasonal factors might hide a key intra-year value.

^2 Note issues with calculating percentages, e.g. LAV went from 100.4 to 235.76, for a 135% gain, but then fell through the starting point to 90.52 for “only” a 61.6% loss.

Home Prices, Equivalent Rents, CPI, TIPS, and Fed Policy

I have an angle to discuss with anyone following CPI (inflation) and Fed policy.   This is my latest effort to look for reasons for potential longs to be interested in the inversion that’s taken place in the CME  Case Shiller home price futures.

The table below draws data related to home prices and CPI from a number of sources and is being used to pose the question: what happens to inflation (or inflation expectations), if year-on-year CME Case Shiller home price futures suggest that home price gains for 2019 and 2020 might be negative?  (…and from my perspective, might this merit a trade?).

The historical data (2014-2018) shows CPI, YOY the Case Shiller 10-city home price index (and YOY % changes), the Fed (St. Louis) calculation of equivalent rents, and the premium of equivalent rents over CPI.  I’d note that the YOY gains in the Case Shiller index have been about 50% greater than equivalent rents, and that equivalent rents have been higher than overall CPI each year.  (Note that owner’s equivalent rents makes up about 25% of CPI)

However, the CME futures for Feb 2020 (so referencing year-end 2019) and for Nov 2020 vs. Nov 2019 (so a possible proxy for 2020) YOY clearing levels, are both negative.  What impact might actual negative Case Shiller YOY values have on the calculation of owner’s equivalent rent?  I would imagine that it might drag down that portion of CPI.    If so, then why are inflation expectations relatively unchanged from 2017-2018?

I might imagine that such inflation expectations are priced into shorter TIPS (Treasury Inflation Protection Securities).  If so, there might be an opportunity for someone participating in both markets to short TIPs and buy 2-3 year forward HCI futures.  There has been little traded, but I’d be open to trying to facilitate a small trade by selling 10-20 lots.

Meanwhile, if the contracts are correct (despite thinness of trading) how might the Fed proceed?    If lower home price gains reduce inflation, it might appear to give the Fed license to continue unwinding the balance sheet, without immediate fear of inflation rising.

Please feel free to contact me (johnhdolan@homepricefutures.com) if you’d like to discuss the above blog, have any questions on it, or have any trading ideas.



Performance of regional contracts in 2018

The performance of the CME Case Shiller home price Nov ’19 futures contracts varied by region during 2018.  (I picked Nov ’19 (X19) as the Nov. cycles tend to have the best liquidity.)

Six of the ten regions were higher (with LAVX19 posting, by far, the largest gains of 16.o points, and DEN and SFR also up), while four of the regions were lower (with CHI and NYM falling the most).  Given the larger weights in the 10-city index of the CHI and NYM contracts (and LAX which also fell), the HCI X19 contract was also off 4 points, or 1.7%.

Notably, six of the eleven contracts closed at levels below spot index values.  (See the Close/Spot-1 ratio in the “Mid/Spot-1” column).   This inversion has not been seen since before 2013.

There were 110 contracts traded last year with >50% in SFR.  Two of the “quietest” contracts (LAX +0.9%, MIA +0.5%) had no trades for 2018.  One of my resolutions f0r 2019 is to change that, so please reach out (johnhdolan@homepricefutures.com) if you have a trading idea for those regions, or if you’d like to discuss this blog, or any aspect of hedging home price indices.

Thanks,  John



Recap of activity in CME Case Shiller home price index futures for Dec.

I’ve posted my recap of activity for CME Case Shiller home price index futures for Dec 2018.  In addition to monthly activity, there are some tables showing YTD trades.  You can find the recap in the Reports section or access here.

December was the most volatile month (in at least the last 24) as noted in these comments from the summary page:

–There were 10 futures contracts traded in December, across 4 expirations, and 3 regions (DEN, NYM and SFR).  This brings the 2018 total to 110, which I’ve broken out in a table on the Volume page (#11).  SFR contracts dominated 2018 with >50% of all trades.

–Market prices collapsed across all regions and expirations with biggest declines in longer exposures and in 3 Calif contracts (LAX, SDG, and SFR). (For example, bids were >10 points lower in LAX, SDG and SFR X20 (Nov 2020) expirations.

–Forward curves went negative (i.e. forward price lower than spot) with 7 of 11 regions having lower mid-market levels in G20 (Feb 2020) than G19 (Feb 2019).   See SFRX20 chart (on page 9 and comparison of G19 (Feb 2019) vs G20 mid-market quotes (on page 14).

–Outright bid/ask, Intercity, and Calendar spreads expanded dramatically on uncertainty of forward HPA.  All such spreads are at historically wide levels.

–There were no options trades in 2018 after 45 in 2017.

–I am eager to facilitate an option trade as last open contracts expired.

–I’ve added a table of contents, which I’ve posted below the blog, so that you can have an idea of topics covered.

Please feel free to contact me (johnhdolan@homepricefutures.com) if you have any questions from this blog, or any aspect of hedging home price indices.

Table of Contents for Dec 2018 Recap:

Page/ Content

  • 5- Price Changes –last month (summary/ 3 contracts)
  • 6- Prices Changes (8 contracts)
  • 7-Volatility of Price Changes picking up
  • 8-SFR contracts following tech stocks lower
  • 9-Curve inversions/ implications
  • 10Bid/Ask Spreads
  • 11– Volume
  • 12-Open Interest
  • 13-Feb ’19 markets (2018 performance)
  • 14-G19/G20 Calendar spreads (one year forward HPA?)
  • 15-YOY forward % changes/ HCI contract
  • 16-YOY forward % changes (CHI, LAX, NYM, SFR)
  • 17-Nov ’19/’20 Candle graphs
  • 18-Calendar Spreads for HCI contracts
  • 19-InterCity Spreads (X20)
  • 20-One year puts
  • 21-OTC quotes “other 10 regions”
  • 22-Disclosure issues

CME home price index futures_post Case Shiller #’s

CME contract prices are marginally higher post this morning’s Case Shiller #’s (see Mid-Mid change in table below) with NYM up (on substantial revisions to the last month’s index values) while SDG remains under pressure.

However the change in prices over these two days is not the headline event here for the month, or even the week.  Contract prices have collapsed (e.g. with bids on SFR contracts beyond 2020 falling by more than 10 points, and offers lower by 6) somewhat in sympathy with the stock market “correction” (air quotes).  The increase in stock market volatility, and uncertainty about where that market will stabilize, has seen bid/ask spreads in this market widen across all expirations.  Most notably, as I wrote about in my Dec 21st blog  forward prices had begun to invert (i.e. forward prices lower than spot).  That trend has moved beyond the SFR contracts to most regions, and the degree of inversion has become more pronounced.

To be clear, most of these quotes are mine (although other traders are contributing to LAV, NYM and SFR contracts).  My approach has been to (try to) bias prices lower seeing as most inquiries are coming from people who now want to hedge.  The key questions for viewers of these quotes are: 1) is the decline in prices an over-reaction to the stock market,  2) will the inversion in the back end become much steeper if the S&P drops below 2300, and 3) which regions are going to be more/less impacted by demand for hedging and/or stock market decline.  I hope to write a blog latter exploring the parallels to the last housing crash with the idea of differentiating those cities that performed like Dallas in 2006-08 (almost unchanged), or that fell the hardest (e.g. LAV).

I’d appreciated feedback on market quotes, people’s views on forward prices, and ideas for trading.  Volatility often creates opportunities to get things done that might not happen in a more stable market.  Feel free to contact me (johnhdolan@homepricefutures.com) if you have any questions about this blog, or if you’d like to brainstorm on the three questions posed above.

Thanks, John




Inversion in SFR Home Price Futures (Declining Prices?)

For the first time since at least 2012, a trade has caused home price futures curve to become inverted (i.e. forward prices closing below spot).  The graph below illustrates that the closing price of 268.6 on the SFRX20 (Nov 2020 expiration) is lower than the spot index value of 269.21.  The SFRX20 close has fallen 16.4 points (or ~5.75%) from the high of 285 last seen on Oct 8.^1

While traders can bid/offer/trade for  variety of reasons, one component might include expectations of future index levels (as the contracts settle on index values at expiration).  So, while many year-end forecasts are calling for gains in SFR over 2019-20 (and to qualify, possibly on other, less volatile home price indices) this market is priced consistent with a more bearish outlook.   As I’ve argued before^2, price changes on futures contracts may include a component of forward expectations, making them much more useful than spot indices for predicting the future.

Some notes:

  • Most of the activity in the CME Case Shiller futures has taken place in the SFR contracts, so prices may be a little ahead of other regions.
  • This market is thinly traded.
  • The SFR region has long been viewed as over-priced by some analysts (e.g. when using income-based metrics), and support for home prices may be more influenced by changes in wealth (e.g. appreciated shares in Silicon Valley companies).  (See next week’s blog for more on this.)
  • Some regions (e.g. CHI) have been inverted before,  but on quotes, not a trade
  • The last time forward contract prices were most inverted was during the 2007-08 housing crises.
  • Finally, some of the strongest housing markets (e.g. Seattle, Toronto, Vancouver, Sidney) have also seen prices drop, so an outright reduction in SFR prices would not be an outlier.

Please feel free to contact me (johnhdolan@homepricefutures.com) if you have any questions on this blog, or any aspect of hedging home price indices.

Thanks,  John

^1-The longer dated SFRX22 (Nov 2o22 ) contract has fallen ~6.75%


Pulsenomics survey: Why are surveys results more bullish than Case Shiller futures?

The quarterly Pulsenomics survey results for Q4 have been released.  (Link here.) I consider this to be the best overall survey of home price expectations as it is broad (with ~>100 contributors -and for fair disclosure, to include me), consistent (in that the format has remained the same), historical (in that the survey results go back years), and current (as the survey is done 4x/year and these results were compiled in the last 30 days).

That said, I continue to observe that the survey results tend to be more optimistic than implied by the CME Case Shiller home price futures, and remain frustrated that those with outlier views (in either direction) won’t take a nominal position.

The bar chart below shows the distribution of 95 forecasts for the cumulative gain of the ZHVI (Zillow) home price index value for 2019-2022.   (I truncated the 2018 forecasts to come up with these numbers.).   The results have a mean value of 12.15% (with a median of 12.77%) and a standard deviation of ~8%.  Consistent with that, 74% of the forecasts are between +5% and +20%.

I’d note that at the time this survey was being taken (Nov 5-18) the CME HCI (10-city index) contract for Nov ’22 had a mid-market value that was about 2% above current spot levels.  This pattern, of CME futures quoted well below consensus Pulsenomic survey results, happens almost every quarter.

Now, with full acknowledgement that the indices are different (ZHVI vs HCIX22), that the time frames are slightly different (2019-2022 for Pulsenomics survey vs. Nov ’18 vs. Nov ’22 for CME futures), why might this difference persist?

 The Zillow and Case Shiller methodologies differ, although both try to capture changes in home prices.  It’s no surprise then the both indices are 45% above a past value (Sept. 2012).

The graph below (showing YoY percent changes of each index) illustrates that the Case Shiller indices have been more volatile than the ZVHI index.  As such, housing bulls (e.g. those looking for >10% gains over 2019-22) might expect the Case Shiller 10-city index to out-perform the ZHVI index.  

I’d note that the CS 10-city index has more of a coastal, urban base, which may be more at risk to changes in SALT (State and Local Tax) deductions.   Further, should waves of Millennials move from the cities to the ‘burbs to set up house and have babies, national versus 10-city indices might out-perform.  Finally, Core Logic economists project the Case Shiller indices to underperform. Net, some outperformance of a more national index may be plausible.  The question remains how much?  Is the difference between the CME mid-market price of ~2% gains (from 2019-2022) versus the ~12% gains from the Pulsenomics survey (and other forecasters), or more than 2% per year, justified?

My sense (belief) is that the CME markets may be skewed by the (very limited) number of participants involved.  That is, while I hear from many “natural” hedgers (e.g. those with more than one house, or those looking to downsize), I do not hear from many natural longs.  Such longs might include overseas investors, Millennials who have not yet bought a house, and pension plans and insurance companies who tend to be underweighted in their exposure to home prices.  As such, at this point in the real estate cycle, the longs may be more speculative in nature, and may need an incentive -i.e. a discount from “fair value” or expected levels -to induce them to participate.  

With the markets being so thinly traded, I’d expect the discount (between Pulsenomics and CME prices) to narrow, should natural longs show up to the CME forward market. I’ve written earlier about how futures prices might be an alternative to Fractional Interest programs.  In addition, futures (or OTC forwards) might be a good way for Millennials looking to hedge partial exposures to the areas where they might eventually want to buy.  Both might be avenues that bring natural longs to this (and other home price index markets).

For now, longs are price setters, able to get whatever discount the hedgers will pay, but taking on positions that are difficult to hedge.  Speculators -particularly more bullish housing economists -might consider speculative longs, before the discount shrinks.

Please feel free to contact me (johnhdolan@homepricefutures.com) if you’d like to discuss this blog, or any other aspect of hedging home price indices.

Thanks,  John



Basics -How to start trading CME Case Shiller futures and and options (for retail accounts)

After multiple inquiries, I thought that I’d pull together my responses of FAQs related to “how do I trade CME housing futures” into one blog (that I will update over time).  If anyone has ideas that would improve this list, please feel free to contact me (johnhdolan@homepricefutures.com).

Understanding Reference Obligations: 

  • To trade any future it’s important to know how the reference obligations (in this case the Case Shiller indices) are calculated.   There is a write-up of how the Case Shiller indices are calculated in Reports section, or you can access here.
  • There are many different home price indices that perform differently due to either geographic coverage (broader vs. more narrowly defined), inclusion in index (e.g. repeat-sales vs new sales, those with FHFA conforming mortgages vs all homes), seasonally adjusted (or not),  and/or calculation method (e.g. repeat-sales vs. hedonic).    Note that the CME contracts reference the Case Shiller NSA (non-seasonally adjusted) indices which are based on a repeat-sales methodology with geographically wide coverage areas.
  • Trades referencing other indices can be done but in OTC (over-the-counter) contracts.

Format of Futures Contract:  There is “An Introduction to Case Shiller Futures” in the Reports section( or you can access here)  that should help explain the structure of the contracts. Some key highlights include:

  • There are 11 regions (one for the Case Shiller 10-city index, and one for each of the ten components),
  • Each region has 11 expirations.
  • Each point is worth $250 so the notional value of a contract priced at 200 is $50,000.
  • Contracts expire on quarterly cycles of G (Feb), K (May), Q (Aug), and X (Nov) months.
  • Contracts settle on the index value released in the settlement month (the last Tuesday).


  • The CME establishes minimum margins (both upfront and maintenance) that your broker might make larger.  That said, my sense is that margins have been running <5% of the notional value of a contract.
  • Each brokerage firm has their own fees for trades and other services (e.g. wiring funds).
  • Best to allow some time before first trade to open account.

Account Opening:

  • You need an account at a futures broker that allows their clients to trade the Case Shiller home price index contracts.
  • Their role will be to screen for suitability, and  KYC issues.   (I’m not aware of any licenses required by users to trade).
  • Any trade you execute will have the CME as counterparty (so I’m not your counterparty on CME trades).
  • I’m aware of two firms – Interactive Brokers and Insignia Futures -that allow trading in outright CS futures for individuals.  IB is a good platform for those comfortable placing orders electronically.  Insignia (contact Joe Fallico) is better if you need human involvement (but they also have an electronic platform).
  • Insignia allows trading in a broader range of orders to include: inter-city and calendar spreads, as well as options.
  • Please let me know of any other firms that will allow retail to trade these contracts and I will alert CME and post to my website.

Futures contracts:

  • I try to make sure that there is at least 1×1 (one lot bid vs. one lot offered) across all contracts out to about the 7th expiration (today X20) via quotes from me or others.
  • At present, many will be mine, but anyone can post a bid or offer.  My sense is that the 1×1 market helps in “bracketing” bid/ask discussions, as well as creating graphs.  On some contracts (typically the 10-city index, CHI, LAX, and SFR contracts) there have historically been quotes in longer-dated contracts.

Trading: Here’s a few ideas on how to approach placing futures orders:

  • Since many markets today are quoted 1×1 I strongly advise not to place market orders for more than than the amount bid.  This is currently a thinly traded market with often limited depth to the bids or offers.
  • Please feel free to contact me if you’d like to discuss trading more than one lot.  I may have interest at (or inside) posted levels for up to 10 lots.  Several of the 5-20 lot futures/option trades that took place over the last few years (particularly in options) started this way.
  • Note that my interest is as a trader.  I am not offering guidance or financial advice.  While the CME is the counterparty, I may be the person taking the opposite position of yours.
  • I’m happy to network/market/blog/tweet any trading axes for larger orders.   (Thin hub-and-spoke information model).   Feel free to sign up for blogs on my website (www.homepricefutures.com), tweets (@HomePriceFuture), or send me emails (johnhdolan@homepricefutures.com).  In the past, smaller trades (e.g. 5 lots) were useful for prompting discussion, and narrowing bid/ask spreads -key to bringing in traders who might be willing to trade larger sizes.
  • My sense is that a disproportionate share of trading seems to take place in the first and last hour of trading days, particularly on days when information that might have more of a direct impact on home prices is released (most notably the two days before and after Case Shiller #s are released.)
  • The minimum quote increment for futures is 0.2 (=$50), and for options is 0.1 ($25).
  • Some vendors describe the 10-city contract using the symbol HCI.  Some use CUS.
  • Calendar spreads may be quoted differently (i.e. with signs reversed) on different platforms.


  • Options (both puts and calls) can be traded on any region, for any 5-point strike, for any of the 11 expirations.
  • Given the 1000+ option permutations, I tend to only post live quotes on 10-20 contracts.  Those posts are concentrated in areas where I’ve seen the most interest, namely 9-18 month term puts where the strike is about equal to the spot index.
  • The Case Shiller options are options on the futures contracts -not options on the index.
  • Options are exercisable European-style (i.e. at settlement).
  • I’m open to proposals on many types of option strategy trades.
  • While there was a lot of option trading when the contracts were introduced in 2006, volume has collapsed.   That said, I believe that options may be a very useful fit for retail clients as total exposure (for buyers) is known upfront.

I hope that this is enough to answer many “how to get started” inquiries.  As noted above, please feel free to contact me if you have ideas: a) on how to improve this post, or b) any trading ideas.






Diagram to reflect changes in forward SFR markets

The graph below may be the best way of illustrating several  points that are key to understanding home price futures, as well as the current debate over home price expectations:

  1. All home price indices (including Case Shiller) measure events that have taken place a couple of months ago.  Since traders often incorporate changing expectations, futures prices may go down (or up) while index values are rising (or falling).   As the graph shows, the SFR (San Fran) index slowly increased in all but one month since Nov 2017, while the SFR X20 (Nov 2020 expiration) and X22 (Nov 2022) contracts rallied until about Sept 1, and then collapsed.  As such, there may be useful, more-timely information in such forward-looking markets, that is not captured in published indices.
  2. Futures prices are public, are updated in real-time, and are posted by traders willing to financially back their views.  As such, they differ from periodic forecasts.  Both may be useful (and more so, if markets are deep and liquid).  The press and analysts, should pay more attention to futures prices.
  3. Futures prices have to converge to index levels as the contracts settle on some future (albeit unknown) index value.  The graph of the SFRX18 contract and the CS SFR illustrate this convergence.  Recall that the data for the Nov ’18 settlement includes home price activity from July, August and September.  As such, (particularly on such shorter-expiration contracts) expectations of future index values should dominate pricing of futures contracts, as subsequent events (e.g. stock market falling 200 points in October, can’t impact past index calculations).
  4. At times, longer-expiration contracts may be more volatile than suggested by standard risk metrics.  (See August-Sept 2018 section in graph.)   This has implications for pricing longer-dated options.
  5. The difference between curves may be consistent with views on forward HPI.   The ~20 point difference between the X18 and X22 contracts in mid-year may have been consistent with ~3% HPA assumptions over the next four years.  By contrast, today’s X20/X22 prices have fallen due to changes in views that may be more consistent with <1% HPA.  A key debate in these markets is whether the forward premium collapse is due to more negative forward sentiment, or just the old “more sellers than buyers” adage.   (BTW -The curves may go inverted -i.e. with longer-dated contracts trading at a discount to either spot or front contracts – as was the case in 2008.  Such pricing would be consistent with negative HPA.)
  6. Hedging works.  Note that someone in May -July, looking to lock in market-implied HPA of ~3%, could have hedged spot SFR exposure with longer-dated SFR contracts, and made money on both sides as longs rose in value, while shorts fell, as HPA expectations collapsed.

Now I can’t make the above statements without adding some qualifiers and observations, that also speak to understanding trading these futures, and how one might interpret prices.

  1. These markets are thinly traded.  In the three contracts shown there may be have been weeks without a trade.  “Closes” can change without a trade as they are (at CME) a function of last trade, a lower offer, or a better bid.
  2. Traders may buy or sell (or post bids and offers) for a variety of reason beyond their expectations of future index values.  For example, traders may be looking to hedge real estate (or other) exposures, or sense that sentiment will grow more negative.  Given the lack of depth, the arrival of larger new contract buyers or sellers, may put upward/downward pressure on prices, unrelated to expectations.
  3. I tend to show 1×1 “actionable” quotes (one bid versus one ask) to form graphs, narrow bid/ask debate.  I may be aware of more interest, at, or inside bid and offer, but may not show (or keep live all day/week).  As such: 1) please refrain from market orders that are bigger than amount shown, and 2) feel free to contact me if you’d like to share ideas.
  4. The CME Case Shiller futures contracts seem to react most notably to infrequent events -e.g. monthly updates to index values, announcements on home sales, S&P 500 index changes of 50+ points.  More trading tends to take place on such days, but otherwise prices tend to be quiet and trend/drift in-between with limited trades.
  5. Most trading seems to take place in the first 30 minutes and last hour of the trading day (the former often coinciding with economic updates).   A trader looking to get something done should appreciate (IMHO) that there will be more eyeballs on the contracts at those hours.

Feel free to contact me (johnhdolan@homepricefutures.com) if you have any questions on this blog, or would care to discuss any aspect of hedging home prices.

Thanks,  John

Recap of Nov activity in CME Case Shiller futures

My recap of activity during November in the CME Case Shiller home price index contracts can be found in the Reports section, or accessed here.

The key notes for the month include:

–There were 11 futures contracts traded in November, across 4 expirations, and 3 regions.

–Activity (bids/offers/trades) remained higher than recent (6-month) history.

–There were no options trades.

–Bids and offers fell for the second month,  across most regions (NYM was the exception).  The three West Coast contracts (LAX, SDG and SFR) saw the biggest declines (and the most activity).  While the contracts have tended to move in the same direction, the individual markets appear less correlated than the run-up from 2016 to early 2018.  The West Coast markets are under the most pressure, while LAV, NYM and WDC are showing reasonable support.    There might be some interesting opportunities for inter-city spread quotes between two markets, rather than just the HCI vs. regional markets that I tend to quote.

–Forward curves continued to flatten with some calendar spreads in longer-dated expirations bid at negative spreads (i.e. sell front contract/buy back one for a lower price).  (Watch for next blog with neat graph illustrating the point).

–Bid/ask spreads narrowed slightly across all regions except WDC.

–With the expiration of Nov ’18 contracts, OI on futures fell from 49 to 32 –about average for the last four post-Nov expirations.  There are only 4 OI before Nov ’19,  the weighted time to expiration across OI is>2.0 years (for the first time I can remember), and inquiries are rising,  so I’d expect OI to grow over the next 9 months.

-I added a page updating proposed quotes on CME indices other than the 10 traded on the CME.   I am open to structuring either a forward trade, or a (European-style) option on other home price indices.  Please share any interest in what other indices you might like to trade.

–I am eager to facilitate an option trade as last open contracts expired.  (I posted a table of two-sided quotes on one-year puts in the report, but am open to other strikes and expirations)

Please feel free to contact me (johnhdolan@homepricefutures.com) if you have any questions on this blog, or any other aspect of hedging home price indices.

Thanks,  John