Quotes on CME Case Shiller home price index futures have tipped over toward being consistent with negative HPA in 2019 for five of the ten regions (NYM, CHI, LAX, SDG, and SFR). Of the other fiver regions none are much above zero HPA, with BOS, DEN, and WDC just below 1%. Only BOS and LAV are priced for more than 1% gains against today’s spot levels.
The graph below is a candle graph that I use in monthly recaps. Price quotes on each of 11 CME regions (the 10-city index contract (HCI) and each of the ten components) have been converted into percent vs. spot for bid, ask and mid. For example, the BOSX19 bid, ask, and mid are 218.0, 221.0, and 219.5, while the BOS spot index is 216.56. Each bar thus shows the relative width of the bid/ask spread as well as the pricing vs. spot for each region, standardized on percentage terms. The outliers include LAV (priced consistent with gains for 2019), and SFR (priced at 2-3% declines through 2019 and 2020.) There are 22 bars, one for X19 (Nov ’19) and one for X20 (Nov ’20) for each of the 11 regions.
The graphs shows which contracts are above 100% (i.e. where prices would be unchanged versus spot), and compares the X19 to X20 ratios. Note that as a general rule, regions with lower prices for X19, tend to have even lower prices for X20. Hence, the net inference one can draw is that quotes are consistent with falling home price indices in 2019 for half the contracts, but that prices are lower in 2020 (vs. 2019) for almost all.
I’ve written recently how all CME quotes need to be taken with a huge grain of salt. The biggest point is the thinness of trading, as well as my belief (that I will explore in an upcoming blog) that longer-dated (i.e. more than 9 months) futures prices tend to be quoted at a discount to expectations. (See Dec 11 blog: Pulsenomics survey: Why are surveys results more bullish than Case Shiller futures? for more perspective). That said, several contracts are offered at discount to spot, or lower in 2020 than 2019, and no one’s “disagreed” (via an improved bid or purchase). The contracts need buyers to balance hedging inquiries I receive. Any takers willing to add what it likely a non-correlated risk to their corporate risk portfolio?
Feel free to contact me (johnhdolan@homepricefutures.com) if you have any questions on this blog, or any aspect of hedging home price indices.