Friday, November 21, 2008

Choose Your Home Price Index

An article by Carl Bialik Only One Person Knows a Home's Value: Its Buyer in today's WSJ discusses the several home price indexes that are commonly reported by the government and in the press. Which index is the best indicator of overall home prices? The indexes do not move together because each reflects a different selection of home sales. For example, NAR reports that 35 to 45 percent of sales consisted of foreclosures and other distressed property in the third quarter. The sales prices on those home, sold under distressed conditions, do not necessarily reflect the prices of homes sold by a non-distressed seller. This explains why the Case-Shiller Index, which includes subprime loans, has declined more precipitously than the FHA House Price Index, which includes on federally financed loans.

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