I've expanded the expirations that I'd consider for HPHF Ratio Agreements to include Feb 2024 (G24). For example, the template below shows the bids and offers on the HPHF Ratio calls and puts for the Austin Freddie Mac index divided by the CS 10-city index, as well as the implicit bids and offers on the reference ratio for two expirations. Note that the boundary conditions for the Feb 2024 expirations are wider than for Feb 2023. Note also, that I've also displayed the percent limits on the boundaries -here 6.06% (for Feb 2023) and 9.16% (for Feb 2024). Boundaries can be negotiated but expect tighter boundaries for quiet ratios (e.g. Cincinnati) and wider ratios for nosier ratios (e.g. Boise) (A more detailed explanation of HPHF Ratio Agreements can be found on my website at https://www.homepricefutures.com/hphf, or in a recent blog . )^1
Recall that, in this case, I'm mixing indices here (Freddie vs Case Shiller) as there is no public CS index for Austin. (I can offer Case Shlller regional index divided by Case Shiller 10-city index on any of the 20 public Case Shiller indices.) Rather than use a Freddie Mac index in the denominator, I've used the Case Shiller 10-city index in case a user wants to combine a RA with an outright buy/sell in the CME Case Shiller 10-city index futures, to try and create an absolute Austin hedge. (Again see blog for background discussion). In this way, I can reference 30+ Freddie Mac indices on cities that don't have a public Case Shiller index, to offer hedging ideas for many cities (e.g. here Austin, but also Nashville, Houston, Philadelphia, and many others. DM me with the city you'd like to see a hedge).
I've also added more information to the template (below). For example, the YOY performance of the reference city index vs a more national index is shown to the right. I've also compared that difference in YOY returns with the YOY % change in the ratio. For small-modest moves, the differences between the two are small. (That Is the benefit of steering most absolute risk to the CME futures, where there is likely greater liquidity and more users, while still offering a basis hedge for one city vs. a more national average, is more likely to generate deeper markets that absolute markets in 50 different cities (for now)).
I will try to update RAs here (look for details at https://www.homepricefutures.com/resources (work in progress) and/or on social media. (Twitter: @HomePriceHedges, and LinkedIn).
Note that I picked Austin as an example to test whether there is any reception for the notion that cities that have rallied more than the US average, might reverse themselves over 2022-23. While Austin has out-performed the CS 10-city index by wide margins over the last few years (see right side), as the ratio has risen for early 2022 (see black line) I've priced Ratio Agreements for only slight gains vs current levels. As such, anyone thinking that Austin will underperform the CS 10-city index for the rest of the year, or during 2023, might consider hitting an RA bid, while those thinking that Austin will continue it's > 4% out-performance over the last few years, but lift an RA offer.
My posted quotes are good for $100k notional, and I'd like to limit exposure to $500k notional per person, until greater interest develops.
Please feel free to contact me here either if you have any questions about this blog, or if you have a city that you'd like to see an RA quote. While I will try to react quickly to outright inquiries at my posted levels, I'm also open to building a deeper book of inquiries across all cities at levels near my quotes, and to tout axes from time to time. Also, while I'm open to taking either side of posted levels out to Feb 2024 expiration, I'm open to proposals on longer-expirations, where I would tout ideas. For example, I had one inquiry on Miami vs CS10 for 2030.
Thanks,
John
^1 Recall that I'm using the CS NSA index released in February as that is tallied on activity through year-end. As such, the Ratio Agreements might be a way to express a view on the performance of Austin relative to the Case Shiller 10-city index for 2022 or 2023.