CME contract prices are generally much lower today (Tuesday Sept 27), in response to today's release of the Case Shiller index for July. (Recall that Case Shiller updates are released with a two-month lag and are calculated with a three-month moving average.)
The table below shows the quotes on the Feb 2023 (G23) contracts for the 10-city index (HCI) and for each of the ten components. There are quotes from yesterday (the BEFORE section at the top) and for near the end of today (the AFTER section).^1
Bids dropped across all 11 contracts with DEN and SFR having the biggest drops, while CHI and NYM were only slightly lower. (Price drops were even bigger on many of the Feb 2024 contracts). ^2
Offers didn't decline as much, resulting in wider bid/ask spreads. While wider bid/ask spreads are typical the day after Case Shiller #'s, the impact was compounded today by the size of the price decline, and the lack of third party participation. (I could use some help with price discovery before month-end to bring these spreads in). That said, I'm not looking to catch any falling chainsaws so while my quotes are live (often 1x1) I'd prefer to work with users to help tout trading axes and to try and bring in other parties. (Guess what, most inquiries are from sellers, so potential buyers get moved to the front of my in-box).
At the bottom of the table readers can see that quotes on the 10-city index contract (290./298.0) are near year-end levels (291.81) and are consistent with near 0% HPA for 2022 (although I remind readers that the futures represent levels where risk clears, and not necessarily expectations). The story is quite different across regions as MIA (+17.50% vs year-end) and SFR (-11.59%) show the range of performance of these ten regions, and (hopefully) should reinforce the message that InterCity and HPHF Ratio Agreements have value in hedging individual regional risk, in what might be a flat national (average) market.
These trends (e.g. SFR underperforming the ten city index/ MIA, BOS outperforming), as well as bigger downward pressure on the three California markets, remain in place for 2023 (i.e. as expressed in Feb 2024 contracts).
There were no trades today.
Please feel free to contact me if you have any questions about this blog/table, have any trades that you'd like to discuss, or if you'd just like to learn more about how other users have employed home price futures in their hedging strategies.
Thanks, John
^ 1 - I believe that almost all of the quotes are mine, although there was a late bid in HCIG23
^2 - Prices on the shorter Nov 2022 contract were only slightly lower as by Friday (Sept 30) all of the activity necessary for the calculation of the settlement index will have occured.