by Calculated Risk on 12/06/2006 11:15:00 AM

From the NY Times: What Statistics on Home Sales Aren’t Saying

The truth is that the official numbers on house prices — the last refuge of soothing information about the real estate market on the coasts — are deeply misleading. Depending on which set you look at, you’ll see that prices have either continued to rise, albeit modestly, or have fallen slightly over the last year. But the statistics have a number of flaws, perhaps the biggest being that they are based only on homes that have actually sold. The numbers overlook all those homes that have been languishing on the market for months, getting only offers that their owners have not been willing to accept.

In reality, homes across much of Florida, California and the Northeast are worth a lot less than they were a year ago.

And: More on Housing Prices

In a falling market, with an enormous number of properties for sale, the houses that are selling tend to be more appealing than the average house.

"We're dependent on houses that are actually transacting," said Patrick Lawler, the chief economist at the oversight agency, which is known as Ofheo. "It's true that may not evenly reflect the market."

Right now, all these flaws seem to be making house values look much stronger than they really are. According to the latest index, for example, the average house in Miami would have sold for 22 percent more this summer than a year earlier. You won't find many house sellers in Miami who would agree that's true.

As Thomas Lawler, a housing economist (and no relation to Patrick Lawler), recently wrote in a report to clients, "Well, there's a growing view that this index...doesn't reflect what's really going on with home prices."

Mr. Lawler of Ofheo disputes that. He acknowledges that the index has fewer high-priced houses than the market as a whole but says that it still picks up many expensive homes, because they often have mortgages worth much less than the house's value. He also pointed out that the Ofheo data covers only single-family homes, not condominiums (which in many markets are doing worse than houses).

More broadly, Mr. Lawler says that the Ofheo index is based on an enormous amount of data that is more accurate than any individual perceptions of a local real-estate market. "The indexes," he said, referring to Ofheo's measure and others, "all do a good job of measuring what they're designed for."

In the end, we are stuck with the data. As noted in the second article:

Mr. Shiller and his colleagues have opted not to adjust their numbers, since any corrections "would be ad-hoc corrections that would not be objective."

Over time, the official data will show the actual impact on prices.