There's been a lot of year-end back-and-forthing on how home prices will play out for 2024 (e.g. AEI calls for higher prices, while MS forecasts a decline, and Zillow is about flat). However, as I often note, there are few ways to express such a view -in a pure play on home prices - other than the binary rent vs buy vs sell decisions that involve life changes and commissions.
The CME Case Shiller home price contracts offer such a platform to express either a national view, or one by selected metros.
While users can take an outright position in Feb 2025 contracts, an easier way to enter the debate might be via Feb '24/Feb '25 calendar spreads. Recall that the February contracts settle/expire on the value of index activity through December. That is, the Feb '24 contract references Dec 2023 and the Feb 2025 contract, December 2024. As such, the Feb '24/'25 (G24/G25) calendar spread is a position on prices of one year-end price relative to the other. Execution would result in a simultaneous long position in one, and a short position in the other at a pre-negotiated spread. (Note that for CME positions, once the front contract rolls off -on Feb 27 - a user would have an unbounded position in the back contract. I can offer OTC versions of this exposure for these and any other Top-50 city, but the results will have boundaries (caps and floors) on how far prices could move.
For example, the 10-city contract is quoted -2.0/+2.0. Since spreads are quoted relative to the first contract that means that the bidder (me, today, but it could be anyone) will buy the G24 contract at 2.0 points below where they'd sell the G25 contract. The offer, of 2.0, means that the seller will sell the front contract 2 points above where they'd buy the G25 contract. This spread had been as wide/inverted as +10 this summer ( someone would have paid up 10 points for front contract).
Note that different metros may have different spreads based on bullish/bearish outlooks. For example, at the most bullish, the MIA spread is -8.0/-2.2 meaning that both the bid and ask (me) are pricing the trade such that G25 will be higher than G24. The debate is to what degree. By contrast, the SFR G24/G25 is 1.0/7.0 consistent with G24 being higher than G25 for both the bid and offer.
Note also, that the 10-city index tends to have the tightest bid/ask spreads (and often the most size on the quotes).
Further, note that these quotes, where one can back into an outright G25 exposure, tend to be tighter than the outright G25 quotes.
Feel free to fire away with any questions on this table, or the concept of calendar spread trades.
Beyond the CME quotes shown here, these exposures can also be arranged for these and other metros in an OTC format on my HPHF platform. However, since these would be OTC format, the possible outcomes would have boundaries (typically +/- 8%), and would be formatted as HPHF options (to fully fund exposures).
Finally, any quotes (DM me for specifics) would reflect relative bullish/bearish sentiment. For example, New Orleans would have a negative quote (as does SFR) while McAllen, Texas would have a positive quote (as does Miami).
I'll blog this concept separately but wanted to get a more full range of options teed up for people to chew on as they debate the "home prices in 2024" debate.
Thanks,
John