Core Logic recently released their monthly Home Price Insights Update. I encourage anyone looking to trade CME Case Shiller futures to: a) subscribe and read their reports, and b) to be appreciative of index (particularly geographic areas) and timing differences in applying any observations they might make, directly to futures on the Case Shiller index.
Having made that qualification (warning) let me dive in to one area they discuss – expected home prices a year from now.
The CME contracts lend themselves so such a discussion as, with calendar spreads, one can simultaneously enter into a buy order in one expiration, and a sell order in another, at a negotiated spread. For example the table to the right shows the bid (orange) and offer (in green) on the calendar spreads for the ten regional markets, as well as the HCI contract (on the 10-city index).
I’ve used Nov ’16/’17 (X16/X17) as the one-year difference dampens any seasonality issues. (Also, a reminder from above, Core Logic wrote about the Oct release versus next year’s October #’s. Here I’m comparing November numbers as there is no October contract).
Recall that calendar spreads are quoted front versus back contract, so a negative number is consistent with lower levels in front contract.
Premiums are converted into percentage differences (to the right). So, for example, the bid in the HCI X16/X17 spread is -6.8 which is consistent with a 3.3% price difference between the two contracts, while the offer of -6.2 is consistent with about a 3.0% difference.
Note that I’ve also shown mid-market to mid-market levels. Calendar spreads tend to bracket mid- to mid-markets (but not always).
The DEN and LAV contracts have the highest percentage differences (and Core Logic shows LAV as one of the strongest areas over the next year) and NYM and WDC look to be the weakest.
I’d note that CoreLogic suggests some stronger than average gains in how they define the Los Angeles, San Diego, and San Francisco areas. The CME calendar spreads (again referencing different versions of these areas) are consistent with much smaller gains.
I’m showing 1×1 (one lot bid/one lot offered) quotes here to stimulate discussion. I’d be happy to facilitate trades or to relay your trading axes here.
Feel free to ask me (email@example.com) any questions.