Crescenzi: Home Price Index Steady

New data comes in better than expectations.
By Tony Crescenzi ,

This column was first published on RealMoney at 11:38 a.m., May 22, 2008. For more commentary on today's action from the RealMoney writers, click here for a free trial.

The Office of Federal Housing Enterprise Oversight (OFHEO) reported today that its home price index fell 0.4% in March compared to February, and that prices for the quarter were down just 0.2% compared to the previous quarter, a percentage point better than market expectations.

These figures stand in stark contrast to the widely followed Case-Shiller index, which is down 14.1% year-over-year. The differences reflect a number of factors. For starters, OFHEO's index is broader, covering far more than the 20 metropolitan markets covered in the Case-Shiller index. Moreover, the 20 markets covered by Case-Shiller are those that have seen significant price volatility in recent years.

A second factor is the fact that OFEHO's index contains only those homesthat are financed by agency mortgages, which tend to be far better underwritten than the universe of mortgages. In other words, OFHEO'sindex will not capture either the subprime or jumbo markets well.

The net of all of these factors means that home prices are probablyfalling by less than the Case-Shiller index suggests because the index is too narrow, but given that OFHEO does not include subprime and jumbo mortgages, prices are probably falling more than OFHEO is suggesting.

The answer is thus in-between, although the broadness of OFHEO's index puts a modest lean (from the mid-point of the two) toward OFHEO, at least in terms of the national average.

Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic,

The Money Market

, first published in 1978 by Marcia Stigum, and

The Strategic Bond Investor

. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback;

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