House-Price Index Readings Can Be Inflated, Built on Shaky Foundations and Far From the Right Neighborhood

By Carl Bialik, Nov 21, 08, WSJ

The good news is your home may be worth more than the rock-bottom price that your neighbors’ houses fetched. The bad news: No one but you might think so.

The one point of widespread agreement in the real-estate industry is that there is no single accurate index of home prices. They are all over the map, cover different sets of homes and may exclude parts of the country or be unduly influenced by the mix of homes sold in a given month.

As the home market surged earlier this decade, the two leading indicators of home prices diverged. One didn’t count homes sold with exotic or subprime mortgages, which fueled much of the bubble. These same properties are often the ones going on the auction block today at severe discounts, pulling the other home-price index down — some say to unrealistic lows.

To address these discrepancies, indexes are going increasingly local. Other, less-well-known measures of home prices — some of them available only to paying customers — are adjusting to exclude homes sold by banks.

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