The monthly Case Shiller indices, reflecting activity through September, were released this morning. The final line in the first table that shows the difference between mid-market values from late yesterday versus the actual NSA Case Shiller index values. Across the 11 contracts the difference was less than 1/4 point. While index results were - in aggregate - consistent with the ten CME Case Shiller futures prices^1 from the day before, there were some surprises. ^2 The BOS, CHI and SFR NSA index values were below the bid side of the expiring Nov '19 contracts, while the LAX contract was the exception coming in above the offered side. The contracts with the three negative surprises all had declines in seasonally adjusted values (not shown here) while the LAX SA gain from the prior month, was larger than that of any of the other ten regions.
The CME futures were -again, in aggregate - about unchanged, with an average decline across the 11 Nov 2020 contracts of -0.2 points. ^3 Given the surprises above, the BOS, CHI and SFR contracts are (no surprise!) lower while LAS, MIA and NYM are slightly higher. Bid/ask spreads are a tad wider, as I wait to see if other traders have difference reactions. There have been no trades yet today, but there were 4 yesterday bringing the number of lots traded this year to 142. This puts the YTD tally at just below the 147 in Nov 2016, which is the highest annual total since 2014. (Still it's about 1/10th the level of where I'd begin to see institutional traders taking paying attention.)
With the close of the Nov '19 contract the CME has opened a Nov 2024 expiration. As I will detail in a future blog, my intention is to narrow focus on the contracts by making markets in the Nov '20 (X20), Nov '22 (X22), and Nov '24 (X24) contracts (as well as the front four contracts). Given that there has been so little activity in the other expirations, and in the contracts in aggregate, I believe that limiting options of what expirations to trade, will be an example of "less is more".
Please feel free to contact me if you have any questions on this blog, or any aspect of hedging home price indices. Recall that you can follow my work at www.homepricefutures.com, or stay up-to-date on trading axes (mine or users') at Twitter (@homepricefuture). Also, recall that while my comments here relate to the ten regional CME Case Shiller futures, I'm trying to develop interest in OTC index agreements for the top 50 cities. (See HPHF page on my website for details.) On both platforms many trades have started with readers sharing trading axes -e.g. areas (and expirations) that they'd like to see a hedge (or where they might add exposure). I have a number of inquiries to which I'm trying to find matches. I'd encourage all inquiries and will look to facilitate any modest-size.
Thanks, John
^1 - While 20 Case Shller indices are published on a monthly basis, there are only CME contracts on the Case Shiller 10-city index components.
^2- I've described my definition of "surprise" in previous blogs to include an index result that is below bid on the CME contracts, or above the offer (assuming no major prior revisions).
^3 -I've been using the Nov 2020 (X20) contract as the benchmark for activity across expirations as there tends to be larger interest in the one-year forward November expirations.