Case-Shiller Index

The shortcomings of (backward-looking) YOY analysis on home price indices. Why CME Futures might be a better forecasting tool.

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.

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CME Case Shiller futures higher -post updates to indices

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.

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Dec recap posted

Trading volume in the CME Case Shiller futures hit a 5-year high, but that still is only a fraction of what's possible, needed, and/or the volumes traded in 2006-07.

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What drives home prices- mortgage rates or stocks?/ An opportunity?

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.

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CME S&P home price index futures -post this morning's release of Case Shiller index values.

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.

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CME Case Shiller Futures approaching Nov 26th expiration: Convergence and Forecasts for Tuesday

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.

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Oct Recap of activity in CME Case Shiller contracts

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).

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Reaction of CME quotes to updated Case Shiller #'s

CME Case Shiller futures are lower after the release of the monthly home price indices. All contracts are flat to lower, except MIA.

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Options_Feb 21 Puts introduced

Prices for puts on the CME Case Shiller home price index futures are now available for the Feb 2021 contract.

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August Recap of activity in CME S&P Case Shiller home price futures

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

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Recap of CME Case Shiller markets post this morning's #'s

Case Shiller index results were weaker than expected by recent CME contract prices.

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Post Case Shiller #'s (July 30)

Case Shiller home price index futures (housing derivatives) are slightly lower this morning after CS #'s.

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Feb 2020 (so referencing year-end 2019) puts

I’ve posted quotes at the CME for puts on the ten regional Case Shiller home price contracts (and the 10-city index) that expire in Feb 2020. Recall that these options will settle on the value of the Case Shiller index released that month, and that that index references data through year-end 2019.

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Reduce the stress of 100% rent vs 100% buy decision with bite-sized pieces

I imagine that one of the biggest challenges facing a first-time home buyer (and their real estate agent) is the binary leap from 100% rent to 100% buy. Such a jump is often the biggest financial decision that people have to make. With new homes costing $400-750,000 in certain markets, this is a decision that involves a multiple of annual income. How can the upcoming wave of Millennials get comfortable that they’re making the right decision when looking at homes?

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Should Boston over LA be 2 points?!? -Super Bowl special (IC spreads)

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.

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Majority of regions tipping toward negative HPA in 2019, falling from there in 2020.

Quotes on CME Case Shiller home price index futures have tipped over toward being consistent with negative HPA in 2019 for five of the ten regions (NYM, CHI, LAX, SDG, and SFR). Of the other fiver regions none are much above zero HPA, with BOS, DEN, and WDC just below 1%. Only BOS and LAV are priced for more than 1% gains against today’s spot levels.

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The danger of fixating on YOY results

Many home price analysts noted that today’s Case Shiller indices continued to record year-on-year (“YOY”) gains. While YOY gains are a great way of addressing seasonal issues, and take on a more “over time” perspective, a fixation on YOY gains may hide turns in the market.

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OTC forwards and options for other regions

While the CME Case Shiller contracts cover many of the largest cities, I frequently get asked about hedging either other regions, or more narrowly defined geographic areas with the ten traded Case Shiller regions. I believe that, in concept, OTC trades can be structured between two willing, informed parties, that will allow a user to hedge any index, using forwards and options.

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Moving? A potential application of Inter-city (IC) spreads

Redfin recently published a great piece that detailed how some residents look beyond their local area for their next house. They noted that many many people in a region look at the same next cities (sorted both by in-state and out-of-state searches) with certain marked preferences. For example, many LA residents eye San Diego, New Yorkers frequently consider Boston, and Denver homeowners seem to covet Seattle’s low taxes.

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LAV -The quintessential region for home price index trading?

Las Vegas home prices have the tailwinds of population growth and the headwinds of accessing sustainable water supply, adding to the debate over future home price forecasts.

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