Forward HPA – a review of Q14/Q15 spreads

Forward CME contract prices are consistent with continued (albeit slowing) gains in Case Shiller index values for the next year.Aug 1-years

The table to the right shows the outright markets (bids, offers and mid-market levels) for the Q14 and Q15 (Aug 2014 and Aug 2015) contracts for all 11 regions in the left-hand columns.  In addition spot values are highlighted in blue.

The “Calendar Spreads:$” columns shows the bids (in orange) and offers (in green) in the calendar spreads.  They bracket the mid-to-mid price differences in yellow.  (Recall that many services, including the CME show the value of the front contract relative to the back. I’m aware that others, including IB, show it the opposite way. In this display higher forward prices translate into calendar spreads with negative values.)

Next, the column “Calendar Spreads: Implied HPA” takes each of the three calendar spreads denominated in points, divides by the mid-market level (and reverses the sign) to give implied HPA for bid, mid and ask.

Finally, the far right column shows the index value change (in %) for the most recent 12 months.

I’ve used the one-year forward markets to avoid seasonality issues.

Net, all contracts have mid-market levels that are at least 4.5% higher.  The range runs from 4.5% (NYM) to 7.6% (SFR).  Calendar spreads tend to bracket mid-to-mid implied HPA by about 1.5-2.0% (on each side.

Noteworthy is that consistent with talk about home price appreciation slowing, most of the regions show declining HPA (e.g. LAV from 16.9% to 6.7%).  Surprisingly some contracts (e.g. NYM show almost no slowdown) and in one case (WDC) an increase in implied HPA.

The tightest market (as of this writing) was the NYMQ14/Q15 market of -7.8/-7.6 for a 0.2 bid/ask spread.  Most other markets were 4-6 point spreads.  I’m willing to “sharpen my pencil” should anyone have an interest in a particular contract.

This chart shows prices and spreads for Aug ’14-’15.  Any other combination is possible but there seems to be a lot of debate about current 1-year forwards.

As always, I’d be happy to discuss this blog or any aspect of home price futures.  Feel free to contact me at