With the stock market collapsing, the question on my mind is what might happen to home prices. The trade off between the benefits of lower interest rates vs the loss of wealth from the stock market sell-off and raised volatility will likely impact various cities in different ways. Yet, so far -other than my own quotes -there's been no reactions in the CME Case Shiller home price futures. After all, with S&P futures being up/down 50 points per day shouldn't there have been some impact?!?
No where, would I expect that uncertainty to be more pronounced than in Las Vegas.
What had been one of the hottest markets a few weeks ago, now confronts a fundamental challenge as the gaming and hotel industries now face conference cancellations and the potential for a dramatic reduction in traffic. The stock market has already priced in some of the implications. For example, the Sands Hotel stock (LVS) is off ~18% from recent highs, the VanEck Gambling ETF (BJK) is down `~14%, and MGM Resorts (the owner of the Aria Hotel) has fallen >24%.
What will happen to jobs, if not overtime, and/or the cash community that thrives in Las Vegas, retract dramatically?
I've posted prices for the LAV contract to try and stimulate debate (and possibly some trading). As in other circumstances, my intent it not to say where LAV contracts should trade, but to post quotes to prompt reaction, and to narrow the range of debate (and bid/asks spreads).
While bids (via calendar spreads) had been +1-2%/ year a few weeks ago, I'm posting near flat bid levels from spot index values out to Feb '25. (See values highlighted in yellow in the top table). I'm doing so to see if there are any sellers who might want to express a view that prices will decline over 1-5 years.
On the hand, I've brought down offered levels to the point where the LAV G25 contract is offered 5.0% above spot levels, for five years forward. Traders who think that LAV might march on with 2-3% HPA (home price appreciation) might look at the offered side.
Finally, these are just my efforts to somewhat bracket forward prices (LAVG25 bid/ask spreads have widened to 9.4 points, but these are not much wider than two weeks ago).
Feel free to contact me to either weigh in on this debate, or if you have any questions related to this blog, or to the broader topic of using home price index derivatives to hedge.
Thanks,
John