Thanks to an offer by a third party, the debate over where home price risk might clear (and/or expectations?), a year from now has taken on more precision and depth. That is, the 230.0 offer in the Aug '21 HCI (10-city) contract is well below both the ~237 spot level and the 238.1 mid-market for the Aug '20 contract (a useful comparison to avoid seasonality issues). Further, the Aug '20/Aug '21 calendar spread is quoted +8.0/+15.0, meaning that someone (me) is willing to buy the Aug '20 contract 8 points above where they'd be willing to simultaneously sell the Aug '21 contract.^1
Anyone looking for an example of sentiment reflecting gains during April-May-June (the period the Aug Case Shiller index covers) to be followed by a dip next year, should review what these contracts are suggesting.
While my practice has been to focus on the February contracts that referenced year-end indices, I'm happy to tout Aug '21 (and Aug'20/Aug '21 spreads) as a) I want to encourage third-party bids and offers, and b) the debate on one-year forward clearing levels is a hot debate (Thank you Core Logic for you market call).
Please free to contact me if you have questions about this blog, have views on this debate, or any thoughts on the overall topic of using home price index derivatives in hedging strategies.
Thanks,
John
^1 ...and do the reversal of that trade at a 15 point spread