Regional disparity -a review of price moves over the last 12 months

While the CME Case Shiller futures contracts are correlated with each other, there was sufficient dispersion across regions in the last year to tell multiple stories.

The graph below maps the ratio of the closing prices of the 11 Nov 2020 (X20) contracts over the price as of June 28, 2018. While prices generally move in sync a few patterns stand out:

* After holding steady for the early part of the summer of 2018, prices began to fall around Labor Day as news about declining sales (particularly in California) began to dominate real estate news stories.

* Prices for the three California contracts (LAX, SDG, and SFR -highlighted in bolder red, grey and green lines) fell by almost 8%.

*All contract prices began to rise in late Feb/ early March/ as news that the Fed would leave short-term interest rates unchanged buoyed 2019 home buying (just as the selling season was getting into full swing).

*Finally, while the California contracts remain below June 2018 levels, only the BOS, LAV, MIA and WDC contracts improved.

The sell-off across contracts, and dispersion of results between regions, should give confidence to any wondering if these thinly traded contracts offered shorter-term opportunities.(assuming one-year is short-term in home prices). Prices of some of the ~2-year forward contracts fell by 8%. In the case of the SFRX20 that was a fall of 24 points (from 285 to 261) at $250/ point.

Further the range of changes in closing price ratios of 5.6% (101.9% on LAV vs 96.3% on SDG) suggests that correctly forecasting the strength of regional price moves can also be rewarding. (See page 14 of monthly recap (on the Resources page: for recent intercity market quotes. (I'll try to re-write an overview of how to use Intercity spreads, which seems to have gotten lost in website update).

Net, market price moves over the last year make clear that there are trading opportunities in both outright and IC markets. Feel free to contact me if you like to discuss either, this blog, or any aspect of hedging home price indices.

Thanks, John