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| New Index on Radar Screen |
| Written by Jonathan Smoke | |
| 04.25.2007 | |
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Discuss this article on the forums. (0 posts) I read with much interest Jonathan Miller’s post at Matrix regarding the formation of Radar Logic Research and their new proprietary index. And I was very excited to see Radar Logic represented at today's Real Estate Derivatives World. “Radar Logic Incorporated, through its partner Ventana Systems, Inc. a mathematics consulting and software firm, have leveraged methodologies commonly used in the sciences, and applied it to real estate. The objective was to make sense of the national residential housing market by creating a daily housing ‘spot’ price to be used in the trading of real estate derivatives.”
After reading through the technical white paper available at the Radar Logic site, I did feel that this was a potential improvement for the real estate derivatives market as it provides the functionality for all intents and purposes to define a spot price for real estate in a given market. This would potentially enable trading to be less dependent on a quarterly index value. Furthermore, the method may improve upon some of the weaknesses of using a repeat sales index such as ignoring new home sales and sales of condominiums. It does not however eliminate the lag issue that still makes this market dependent on an index.  As someone who believes in the importance of and hopes for growth in real estate derivatives, what I fear most about this for the derivatives market is the possibility for a format war like that being raged in the market for high definition DVDs. We heard quite a bit about "Index Wars" on the commercial side of the Real Estate Derivatives fence. I agree we need a good index to serve as the basis and reference point, and I am all for arguing for the most technically accurate and appealing approach. But like DVDs and communication technologies, if the debate remains focused on format, the required common language to enable supporting systems, intelligence, and services to spring up will be delayed as we all take sides. I wish Jonathan Miller success with his colleagues in this new venture. And, here’s to a relatively quick resolution of format to get us on to the business of actually seeing some real estate derivative transactions of substance in the U.S. 
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