Those confusing home-price statistics.

• Author: Adams, Tucker Hart
• Position: The ECONOMIST

There are a lot of confusing, indeed conflicting, economic data released by various organizations and reported with breathless headlines in the popular press. One of the most confusing, even to economists, is the monthly data on housing prices.

Pick a month - say September, when we read that prices fell 7.1 percent, rose 0.2 percent, fell 3.8 percent, rose 1.8 percent and fell 8.9 percent. Did home prices rise or fall? Can both be true?

In a sense, the answer is yes. The problem is various methodologies covering different components of the housing market.

The simplest figure to understand and the one that gets the most attention is the monthly news release by the National Association of Realtors covering existing home sales and median prices the previous month. The November release showed that the median price declined 7.1 percent from October 2008 to October 2009

There are two problems with Board of Realtors data. First, they only cover existing homes that sold, and second, the overall price can actually increase even though every home price in the data base fell.

How can that be? Consider a community comprised of five homes and look at the median price. Suppose in Period I, five homes sell and in Period 2, three of those home are resold.

Period 1 Period 2 Price Change House 1 $150,000 $140,000 -6.7% House 2 $200,000 No sale n/a House 3 $300,000 No sale n/a House 4 $350,000 $310,000 House 5 $600,000 $525,000 -12.5% Median Price $300,000 $310,000 3.3% Average Price $320,000 $325,000 1.6% Each house sells for less in the second period than it did in the first, yet the median and average price increase. Although this is a trivial example, it illustrates what happens when the market softens for lower priced homes, but more expensive homes continue to sell, albeit at a loss. The same thing can happen in the opposite direction if expensive homes sell in the first period and moderately priced homes in the second.

There are two other price reports using different methodologies that give a more accurate picture of what may have happened to the price of your home. Both utilize what is called the repeat sales method, using only data on properties that have sold at least twice in order to capture the true appreciation.

The Office of Federal Housing Enterprise Oversight uses a database of homes insured by Fannie Mae or Freddie Mac. This excludes the sale of any home priced above $720,750 ($417,000 prior to 2009). Data...