Let me repeat something I wrote here last September:
The two indices have three principal differences:
OFHEO has only houses financed with conforming mortgages (those with balances of less than $417,000). CS uses all sales.
OFHEO includes appraised values for refinance loans. CS looks only at sales.
OFHEO includes houses that may have been substantially improved from one sale to the next. CS throws those houses out.
I think the last of these three points is especially important in partially explaining the difference between price indexes.
2 comments:
Then what do you think of Andrew Leventis' paper on quality drift in the OFHEO index? He concludes that even if the effects of depreciation were neglible (which they aren't) that the inflationary impact of home improvements will still be relatively small.
And, for that matter, Andy Leventis' paper on the differences between the OFHEO and CS indices, that shows the biggest source of the difference is the exclusion of most subrpime loans from the OFHEO index - excluded because Fannie and Freddie don't buy that many subprimes?
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