CNBC.com

On days like today when we have multiple price reports (S&P Case-Shiller and OFHEO Monthly Home Price index) and consequently multiple measures of just how badly home prices are falling, I like to take a step back and explain where these numbers come from.

S&P C-S looks at prices in the top ten and top twenty markets, and those indexes are down 16.3 percent and 15.3 percent respectively on an annual basis for April. The OFHEO index shows prices nationwide down 4.7 percent from a year ago.

Since S&P C-S looks at the top twenty markets, it is looking at the most expensive markets, while OFHEO only takes data from sales with conforming loans (anything under $417,000), so it is really measuring the bottom of the market.

California’s median home price is above the conforming loan limit, so you’re knocking out a huge portion of one of the fastest decline markets. California actually holds one quarter of all the housing stock value in the nation. Thinks about that.

The other crucial point is that OFHEO does not capture the sale of all foreclosed homes and short-sales, which represent huge price drops. A bank sale of a home will only appear in the OFHEO data if it is purchased using a GSE loan. And remember, the GSE's bought very very few subprime loans, so if the bulk of foreclosures are in subprimes, you wouldn't see those sale prices in OFHEO data.

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