Who knew?

A couple years ago, media-shy Robert Shiller and Karl “Chip” Case released, to much fanfare, their “S&P/Case-Shiller® Home Price Indices”. These indices (I prefer the word “indexes”) are a way to measure investors beliefs as to the direction of the US real estate market, by geographical region.

For example, there is a Boston index which, in a report issued at of the end of August, 2007, for the 2nd-quarter, 2007, showed that investors believe that the local real estate market will suffer an annual rate of decline of 3.9% (Boston, in this case, is really “Greater Boston”, although the boundaries are not defined). (This same index shows that Boston has had a 171% 71% increase in home prices, since the year 2000.)

Everyone loves quoting the index!

However, it is based on woefully incomplete data. It only includes single-family homes, for one thing (no condos or co-ops). It doesn’t include new homes, only resales, for another.

Is it worth using? Sure, but it’s like anything. You should add it to your base of knowledge, use it when making your decision on whether or not to buy a home, and when.

So, a couple days ago, it was announced that there was a new kid in town.

Created by Radar Logic, the index enables investors to bet on the future values of real estate in New York City and 24 other metropolises. It is the second attempt to create a market where large investors such as hedge funds, and eventually individual people, can bet on the future of real estate prices much in the way that investors now bet on the future prices of commodities like corn and gold.

“What this will do is give you an ongoing view of what’s happening in the real estate marketplace,” a vice president at GFI Group in charge of U.S. real estate derivatives, Philip Barker, said. “The market for Radar Logic is gaining liquidity much faster than anything we’ve seen on the residential side before.”

What did Shiller/Case think of its new competitor?

Mr. Case, who has been involved with research into real estate indices since the 1980s, said the RPX caters more toward dealers, but includes more “unpredictable random error” by using complex mathematics to calculate the values on a daily basis.

“They add fancy math, but they don’t add data,” he said.

With a sniveling snear, no doubt!


Who knew economists could be so catty!

Mr Case is wrong. It does add new data, it adds condo sales and it adds resales.

Which is much more relevant to you and me, no?

Source: Amid Market Uncertainty, a New Hedge – By Bradley Hope, The New York Sun

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Updated:  1st Q 2018

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