May '20 expiration approaching -What will be impact of COVID?

The expiration of the May 2020 (K20) contract is fast approaching. Since Monday is Memorial Day, my sense is that the last day of trading will be Friday. Also, the expiring contract tends to go "off the board" an hour before closing of the other contracts, so I believe we're looking at a 3PM EST close on this contract. Further, as the Memorial Day weekend has been the unofficial start to summer, expect traders (and therefore liquidity) to be even lower as people leave early.

If that weren't enough, the May '20 contract expiration will go down as one of the most "devilish" in years. For the first time since the COVID market crises began, we finally get a Case Shiller index that includes a reference period when the economy began to collapse. That is, the May release covers the period from January through March. How much of what happened in March, and how it will impact the May #'s, has been a launching board for vigorous debate. For example, in the last month, the HCI (10-city index) has traded from 226 to 232, an unusually wide range for an expiring contract.

The following table gives a snapshot of the May '20 contracts (as of 9:30 AM on Wed. May 20). Bid/Ask spreads average > 2.0 points (across the 11 contracts). Bids tend to be at slight discounts to the Case Shiller #'s released in April, while many offers are only slightly above spot levels (except CHI, LAV and NYM, which are offered at slight discounts).

I'm eager to facilitate any inquiries (outright or city-vs-city) for those that want to take a view before Tuesday's press release.

One note/gripe - the last line in the table illustrates, the mid-market levels of the May '20 contract are consistent with year-on-year gains across every region (except CHI). As such, one pronouncement that I expect you'll hear on Tuesday is that "HPA is still positive two months after the COVID crises peaked". Of course this ignores that the Case Shiller index calculation is a backward-looking, lagged index.

For a sense of where home price risk might clear in the market, several months from now, I'd have you follow my posts at This morning's quotes on the Feb '21 contracts, and their discount to spot index levels, is shown below. Note that all contracts are offered at a discount to spot.

Feel free to contact me if you have any questions on this blog, or issues related to using housing derivatives in hedging strategies.