The Case Shiller numbers released this morning included some "surprises" to the CME Case Shiller futures markets. I use "surprise" here to highlight when an index falls outside the bid/ask range of the expiring CME contract. While the May '20 expiration resulted in all 11 indices being above the offered side (of the expiring May '20 contract) here the Index values on six regions were below the bid side. This is unusual in that the expiring bid/ask spreads averaged ~2 points (which is wider than for past expirations). Further, while some indices were just below the bid side, for the NYM an SFR regions, the index values were more than one point lower.
These "surprises" resulted in lower quotes (and with the disclosure that many are mine) on the benchmark Feb '21 contract. As illustrated in the table below, mid-market levels are down across all 11 contracts, with HCI and LAV priced lower the most, and DEN, LAX and SFR the least impacted.
The average of bid/ask spreads has widened (from 4.0 to 5.3) consistent with the first few hours post release (as I wait to see how other traders might react).
Finally, with the expiration of the Aug '20 contract, the Nov '21 contract will re-open for trading. This contract, and discussion of Nov '20/Nov '21 calendar spreads, should help foster discussion on where home prices are headed over the next year.
Feel free to contact me if you have any questions about this blog, want to share any trading ideas, or just want to learn more about how home price index derivatives might be useful in hedging strategies.
Thanks, John