| New Daily Price Index Up and Running |
| Written by Jonathan Smoke | |
| 08.07.2007 | |
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Discuss this article on the forums. (0 posts) One of my first posts on Housing Intelligence was about a new daily spot home price index being developed by Radar Logic.  Yesterday Radar Logic announced the formal launch of the daily price indices for 25 markets. The company also announced license agreements with several major investment firms -- Morgan Stanley, Lehman Brothers, and Merrill Lynch -- that plan to begin trading over-the-counter contracts based on the price indices starting in September. Based on their announcement: “Radar Logic uses innovative, proprietary modeling techniques to create Daily Prices derived from the actual prices paid for U.S. residential real estate. Investment and derivative opportunities based on these prices, in the new market referred to as the Residential Property Index (RPX), are expected to initiate shortly.”
The Radar Logic daily prices will compete with the S&P/Case-Shiller Home Price Index, which is the basis for the housing futures that have been trading since May 2006 on the Chicago Mercantile Exchange. The two indices are different in the way they are constructed and therefore offer a choice to those seeking the benefits of derivatives based on home prices. According to a brief article in the “Up Front” section of Business Week and available online: “Radar Logic's CEO, Wall Street veteran Michael Feder, contends that his Daily Price—not strictly speaking an index—will ignite more trading, partly because it includes new and foreclosed homes and condos, which S&P excludes. But Yale University economist Robert Shiller, co-inventor of the rival S&P index, argues that mixing different property types will skew the Daily Price whenever the mix changes. Trading in the S&P index has been light, but bankers see potential in home-price betting. "We're bullish," says Erik Siegel, an executive director in derivatives trading at Morgan Stanley.”
It will be interesting to follow the take up of the RPX. Will it slow down the advancement of the exchange traded futures? It’s possible that the competition may drive greater adoption. And of course a highly volatile and uncertain future won’t hurt. 
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