I’ve created an entity called Home Price Hedging Fund (“HPHF”) to facilitate OTC trading in home price indices. While I remain of the view that the CME platform is the most transparent, pure-play on forward home price indices, I have received a number of requests from readers looking to express a view on home price indices not referenced by the CME Case Shiller contracts. HPHF was created to try to serve those readers’s needs.
An overview of HPHF is in the Reports Section. Please review to understand any similarities and differences between HPHF and any other platform (to include CME) that might facilitate trading in home price indices.
At a high level, I’ve designed HPHF based on my 8+ year experience as market maker in the CME Case Shiller futures with certain attributes that recognize that interest in hedging of home price indices has been diffused, that potential buyers and sellers of a particular index haven’t had a place to meet, and that buyers and sellers might want to act at different times, or on different expirations. I recognize that home price index hedging is a relatively new concept for many parties, some of whom may have limited experience in financial derivatives (e.g. brokers, current homeowners, Millennials considering a future home purchase) and as such, am intending to post designated time frames to bring buyers and sellers together, with a focus on one expiration per index, for simple contracts referencing smaller “bite-sized” notional exposures.
To contrast, while one approach might be to have a highly-capitalized, continuous market maker (with possibly opaque pricing), I don’t see the need (and don’t have the ability) for 24/7 trading in other home price indices. Instead, I’m attempting to bring pre-cleared buyers and sellers together, to have them share their views on where they would commit to buying/selling an index (to start, on the index value for year-end 2019), and to match interested parties.
HPHF will post bids/offers in the run-up to a posted auction (to share thoughts on where at least one lot will trade/ establish reserve prices), but then will aggregate inquiries using a second-best bid protocol, to match buyers and sellers at one price. (That should assuage some participants about over-paying or distressed selling).
I’m open to ideas as to what auctions people would like to see. Given recent volatility and press coverage, and interest expressed by users, I’m inclined to start with Seattle, Minneapolis and Atlanta referencing the Case Shiller indices. I also hope to have auctions on Texas exposures (to include Dallas, Houston, and Austin) soon after, however it makes no sense to hold auctions until some number of potential users have applied.
Please feel free to contact me (email@example.com) if you have: 1) any questions on this blog, 2) would like forms to be pre-approved to participate in an auction, or 3) have particular home price indices that you’d like to see auctioned.