There was a great Page One article in the New York Sun by Bradley Hope today Amid Market Uncertainty, a New Hedge that covers Radar Logic’s property derivative product RPX. (note: I head up Radar Logic Research). As a good reporter should, Bradley gathered a quote from Karl Case, one of the creators of another property index, the S&P/Case-Shiller® Home Price Indices that has been available for more than a year.

While I have met the widely quoted Yale economist Robert Shiller and recently appeared with him at Lincoln Center at the Real Deal New Development Forum, I have not had the pleasure of meeting his longtime associate, Karl Case.

Mr. Case, who has been involved with research into real estate indices, 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.

Coming from a respected economist, I am surprised by his lack of understanding of RPX, and for making this type of comment, especially when RPX methodology is transparent and fully available on the Radar Logic web site.

Professor Case has really got it backwards. RPX has added data which is specifically excluded from the S&P/Case-Shiller® Home Price Indices:

  • Condos – “Condominiums and co-ops are specifically excluded” (from CSI)
  • New construction – “new construction is excluded” (from CSI)

It is fair to say that the real estate markets in the metro areas covered in their index have been significantly influenced by condo and new construction activity.

In addition:

  • Foreclosures – “subsequent sales by mortgage lenders of foreclosed properties are candidates to be included in repeat sale pairs” (from CSI) How is this determined?

As far as the fancy math comment goes, all I can say is: “good grief.” The RPX proprietary methodology was created by an affiliate of Radar Logic, Ventana Systems who for more than 20 years have been creating and deploying robust, comprehensive models of a complex environment for strategic visibility and control and whose current projects include modeling the national airspace system, research and development productivity, national economy, energy, climate, disease epidemiology and intervention. Ventana is run by the brightest people I have ever met.

Stay tuned!


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5 Responses to “Repeat Sales, Fancy Math and Shaking The Tree”

  1. L'Emmerdeur says:

    Twenty frickin’ years of bloody mark-to-model garbage on Wall Street by overpaid college grads, and NOW he has a problem with modeling returns and stats where data is sparse?

    LOL. Shoulda thunk o’ that before they issued half a QUADRILLION dollars of derivatives using those mark-to-model fantasy role-playing formulas.

    guess they only like mark-to-model when the model tells them what they want to hear. Modeling thatleads to greater transparency? Not so much.

    Sorry, I’m ticked off. Guys like Case should know better. Lord knows they are paid enough to know better.

  2. Noah says:

    So your model includes more “unpredictable random error” yet their NYC index excludes co-ops, condos, new dev sales, and includes counties in CT, NJ, NY, & PA.

    Their NYC index should be called the Tri-State Suburb Index instead.

  3. John K says:

    I love it!

    Who knew economists could be so catty!

  4. Downtown Pearl says:

    “creating and deploying robust, comprehensive models of a complex environment for strategic visibility and control” Wow! Looks like they have a good spinmeister there also!

  5. John K says:

    Kenneth Harney at the Washington Post breaks down the difference between Case-Shiller and OFHEO, in a column today.

    Honestly, neither index seems to be very useful …