Exploring regional home price index markets beyond the 10 CME listed contracts

Someone looking to hedge home price index exposure might find one of the ten regional contracts listed on the CME (plus one for the 10-city index) useful, but what if you’re looking to gain exposure (long or short) to another area?  There are another ten, public regional indices  (that with the first ten, constitute the components of the Case Shiller 20-city index) that are updated monthly by S&P/Core Logic.^1  I’m not aware of any platforms that allow trading in contracts referencing those indices.  I’d like to try and change that.^2

The table to the right shows the quotes on the ten CME regional Feb ’19 contracts, in green. Bids, offers, the bid/ask spread, and the percent difference between the mid-market level and the index value from Feb 2018 (for the Dec 2017 index), are shown.    The section below (in blue) shows suggested bids and offers on the second ten Case Shiller indices, assuming a derivative with similar attributes to a CME contract.   Prices on the CME quotes are actionable (while live, and updated, and when the CME is open) while prices on the “2nd 10” are subject to negotiation in an OTC format.

I’ve picked the Feb ’19 contracts, as the contract settles on the index values for the period ending in Dec 2018.  As such, this contract will better highlight percent changes in an index value over a calendar year.  My hope would be to roll out prices on the “2nd 10” for a Feb 2020 contract sometime over the next two months, and, like here, contrast results versus CME quotes.  That would then facilitate discussion about home price index expectations -across an expanded set of regions -for 2019.

Since this is my first (public) effort to put bids and offers on the “2nd 10” set of indices, I’d like to hear feedback on my proposed bids and offers.  I’d be open to structuring smaller OTC trades (e.g. $100 a point vs. $250 on CME contracts) to start, and/or would be happy to serve as a bulletin board for anyone with a strong trading axe in these regions.

As there is no exchange to trade these “2nd 10” regions, if interested, please contact me for a trading idea that will address issues related to margin and counterparty risk.

Feel free to contact me (johnhdolan@homepricefutures.com) if you have any question on this blog, or any other aspect of hedging home price index exposures.

Thanks,  John


^1 See page 8 of Case Shiller Home Price Index Methodology

^2 Even more indices could be explored.  In addition to the 20 public Case Shiller regional indices, other Case Shiller indices are published for private use (see page 32 of Case Shiller Home Price Index Methodology) Core Logic has expressed a willingness to create customized Case Shiller-style indices  In addition, indices from other providers could also be used for other areas, or for more narrowly defined areas within any of the Case Shiller regions.  I intend to blog about one such subset (Texas) in the next week, and would be open to discussions about home price index hedging on other more localized indices.


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