Prices on the CME home price index futures were slightly higher after this morning’s release of the Case Shiller indices. The table below shows the market quotes on the expiring Nov ’17 contract from yesterday, versus the actual CS #’s released this morning. I would highlight three surprises: DEN and WDC where the index values were only slightly below the bid side of the Nov ’17 contracts, and NYM which came in far above the offered side of the NYMX17 contract. (Not only did NYM come out higher, but last month’s NYM index was revised lower, making the printed gain even more dramatic. Note that last month’s WDC index was also revised lower by 0.52. Absent that the WDC index value might have been within the bid/ask range of the WDCX17 contract.)
With the strong move in the NYM index, prices on contracts rose slightly (as illustrated here using the Nov ’18 contract). (Note that the S&P contract is also up 20 points, which might bias the results). Averaging across all expirations, bids are about 0.5 higher, while offers are about 0.7. Gains were largest in the BOS and NYM contracts, while CHI, DEN and WDC were marginally lower. As typically happens, the largest moves were seen in the contracts were the reference indices produced the biggest “surprises” (in this case NYM and WDC). I’d argue that changes versus expectations, not the size of a change, is what prompts contract prices to move.
There have been no trades today, and in fact it has been a very quiet day/ month. I haven’t noticed any other traders placing bids and offers today.
Please feel free to contact me (firstname.lastname@example.org) if you have any questions about this blog, or any aspect of hedging home price indices.