Will the S&P/Case-Shiller Reverse The Trend Or Are Spreads The True Indicator?

Today’s Pending Home Sales for June month-over-month came in lower than the expected 0.5% at a -1.1%.  The prior May number was a 6.1% later revised to a 6.0%.  Tomorrow the S&P/Case-Shiller 20-City Composite Home Price Index is due for release at 9am.

Heading into the release, the spread of the S&P/ISDA CDS U.S. Homebuilders Select 10 Index is at 155.7, steadily increasing the cost of insurance throughout the month after an initial step down the first week.  Year-to-date the cost of homebuilders insurance topped out at a spread of 178.05 on April 23rd.  The spread touched a bottom point of 136.6 at the beginning of July, 11 basis points tighter than the December 31st value of 147.58.  At 155.7 the cost of insurance would be $1,557,000 per million of coverage.

Spreads of the homebuilder issuers, of which the majority reside in the S&P U.S. Issued High Yield Corporate Bond Index due to the nature of the business and their credit worthiness, have widened on average over the course of July by 19 basis.  M/I Homes Inc. widened the most in option adjusted spread (OAS) by an average of 181 basis points, followed by Shea Homes LP.,at 105.

Kris Hudson of the Wall Street Journal recently wrote an article entitled: Some Home Builders Say First-Time Buyers Returning, Other Not Sure, which covers the indecisiveness of whether buyers, especially first time buyers, are returning to the housing market.

Source: S&P Dow Jones Indices, data as of 7/25/2014

The posts on this blog are opinions, not advice. Please read our disclaimers.

One thought on “Will the S&P/Case-Shiller Reverse The Trend Or Are Spreads The True Indicator?

  1. Pingback: Late July Muni Minutes | S&P Dow Jones Indices

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