March Recap on CME Case Shiller futures

I've posted a short recap of activity in the S&P CME Case Shiller home price index futures for March. The report can be found in the Resources section or one can link here.

The recap is shorter than past versions as I'm trying to get price updates out more quickly. There are still 10 pages covering prices, volume, open interest and an overview, but see the website www.homepricefutures.com for more information on calendar and intercity spreads, put and call options ( See www.homepricefutures.com/options for updates.) , as well as indications for OTC Home Price Hedging Fund agreements on cities not referenced by CME contracts. (See www.homepricefutures.com/my-quotes for color.)

For those new to this page, I think that one of the most compelling benefits of home price hedging is the ability of users to do partial hedges. That is, contracts and OTC agreements are available in notional exposures as small as $25,000. Users can postpone the binary decision of rent/buy/sell in taking bite-sized exposures to regional home price indices to add/reduce exposure. (see May 2019 blog on Bite-Sized pieces for more details.)

The key points from the recap include:

–Only eight lots traded in March, in four regions and three expirations. Running 12-month totals are collapsing as the volume from Feb-April 2020 (due to margin increases at one key FCM, the CME changing the expiration schedule to a February cycle (which I applaud), and the market reaction to Covid) all run off.

–Prices continued to rise, particularly after the March 30th index updates, but bid/ask spreads widened slightly in key markets (K21, G22 and G23). This was due (particularly on the front K21/May 2021 contract, to both the size of Case Shiller index updates, having only one day between the index updates and month-end, as well as the lack of third-parties also quoting (challenging?) my quotes.

–in addition to options and HPHF agreements on other cities, I’m also open to quoting agreement on international cities (Toronto?, London?, Sydney?) and have been updating the Compass Paris home price index and HPHF Feb‘22 forward levels as the index is updated biweekly. (See my Jan 18th blog for an example, and follow me on Twitter (@HomePriceHedges) for updates.

The table and graph below show how far contract prices have moved in the last year, and how forward prices are consistent with positive, but smaller gains in the future. I continue to believe that CME prices clear at a discount to expectation as the contracts are a form of risk-transfer where those looking to hedge (many) need to balance those looking to take on home price risk (few). See Dec 2020 blog for a longer discussion. Also, while contract prices tend to show 1x1 markets (i.e. one lot bid versus one lot offered), I'm open to larger trades/agreements, and/or quoting inside stated levels. Feel free to contact me if you'd like to discuss.

Thanks,

John