0 'fer -May 20 expirations

In a first, the 11 May Case Shiller indices released this morning (the ones used to settle the CME contracts) were all higher than than the offered side of the CME markets on Friday. In effect the contacts went 0 for 11 in "predicting" the actual Case Shiller numbers.

I had previously blogged about how trading in the May contracts had taken place over a wide range, and in the absence of distressed sales, had expected CS #'s to come out closer to the offered side. There was a quite a bit of trading on Friday suggesting that others had even stronger views. They were right.

Note that the CS #' s weren't just an inch higher than the May contract offers from Friday. In the case of the three California markets, the actual index was >2.0 points higher than the offered side.

With May in the books, my attention has shifted to the August contracts (Q20) that settle on an index covering activity in April through June. With almost two-thirds of that period having lapsed, and again, no evidence of distressed sales, it appears likely that the August contract values had to be notched higher. I had started doing so early last week, but brought several August offerings (e.g. BOS, DEN) up to above spot levels this morning. I'd note that even areas that seemed to bear the brunt of COVID or the economic fallout (e.g. LAV and NYM) are bid much closer to spot than last week.

Some G21 contracts are now up 15 points from the lows that were seen when hedgers seemed to be selling anything. For example, the HCIG21 contract was offered as low as 206 (and traded lower), and today is quoted 218.0/227.0.

At these higher levels, I expect to approach market making more cautiously as I'm still wary about the impact of >20mm unemployed workers on the potential demand for home prices.

Please feel free to contact me if you'd like to discuss a hedge, are still looking to buy, or have any questions related to using home price derivatives in hedging strategies.