I was browsing through the US housing price index CUS, and i realise that the futures trading at the further month is at a discount, more specifically today's quote on CUS are as follow: Symbol Expiry Bid Ask CUS MAY07 218.2 219.4 CUS AUG07 215.4 217.4 CUS NOV07 211.8 214.4 CUS FEB08 210.2 211.8 shouldn't the futures in further months trade at a premium and not at a discount? I check the other housing indexes, they are all trading at a discount for the further month. Can anyone answer the question? The only logical answers i can think of myself is the market thinks the housing price is going down rather than going up. Even if it is so, someone can just do a calendar spread to hedge the risk. Thanks in advance Clayton
The contracts exhibiting an inverted price structure makes sense if you consider that housing can produce rental income and capital gains while a futures contract won't, unless it's priced at a discount to the underlying index. That way, you don't get to hedge for free.