I've posted a recap of activity in the CME Case Shiller home price index contracts for February. You can it on the Resources page or link here.
It was another quiet month with low volume (only 6 lots traded) and limited third-party inquiries or quotes. With the expiration of the Feb '21 contract OI dropped to historic lows. The CME opened a new May '22 contract.
However, despite the lack of activity my sense is that the market has become better positioned for traders to express views. Bid/ask spreads have compressed back to "normal" levels (e.g. those before Covid), and the front part of the forward curve (i.e. the May '21, Aug '21 and Nov '21) contracts better reflect underlying bullishness. Stated another way, current prices make for a better entry point for any hedgers worried about prices over the next six months.
Longer-dated contracts are still conservatively quoted at levels consistent with ~1% HPA. I see no reason to "trade against myself" with significantly higher bids as the flow of hedging inquiries tends to dwarf that of potential buyers. What this market needs is someone who is willing to express a view (with a long position) on how Feb '23, '24, '25 contracts are undervalued versus expectations. (In that vein I look forward to the next Pulsenomics survey results to see - and test?!? -how bullish some forecasters are). Given this, users should expect me to be more flexible on the bid side of longer contracts, but not necessarily the ask side.
I'd also offer a final note on mechanics that impact prices. The HCIK21 and HCIG22 contracts drive many prices in other markets through a combination of calendar and intercity spreads. For example the K21 quote is the anchor for K21/Q21 and K21/X11 calendar spreads, and the G22 feeds into G23, G24, G25 and G26 quotes. in addition both HCIK21 and HCIG22 are the base for many intercity quotes across those respective expirations. Any help to provide depth to the HCIK21 and HCIG22 contracts will help provide liquidity to other contracts.
Alternatively, I'm also keen to respond to inquiries on IC and calendar spreads (and had one trade this month that was a result of such discussions). IC and calendar spreads quotes tend to be much tighter than those on outright markets, which should be a positive for those looking to express a relative value trade.
Finally, I'd note that the BOS and WDC regional contracts have no open interest. I'm eager to respond to any trading inquiries that would address that.
In addition to the above the report has month-end quotes for both puts and calls that can be structured using HPHF agreements. (See Options page for updates).
I've also been updating suggested pricing on OTC forwards referencing the home price indices for the "other ten" cities in the Case Shiller 20-city index. (See My Quotes page for updates.)
Finally, I remain open to offering agreements on international cities. I've been updating Paris quotes every two weeks (as the Compass Paris home price index is updated), and have had discussions about other cities (e.g. Toronto, Wellington and Hong Kong). Why not?!?
Please feel free to contact me if you have any questions about this blog, if you have any trading ideas that you'd like to explore, or if you'd just like to learn more about the use of home price index derivatives in hedging strategies.
Thanks, John