The trouble with house prices

Dave Wessel has a good piece at WSJ.com on the difficulty of telling how much your house is worth. There are two main housing indices, the Ofheo index, and the Case-Shiller, but recently they've diverged.

Wessel explains why:

The Ofheo index relies on data collected by Fannie Mae and Freddie Mac, which Ofheo regulates, so it excludes loans too big for Fannie and Freddie to guarantee (those exceeding $417,000) or too shaky (the riskiest of the subprime). Case/Shiller includes those, but its data are limited to 20 major markets because it relies on the costly process of going to local property records for data. One of Mr. Calomiris's complaints is that house prices in these markets may be doing worse than those in other places.

Last year at the annual meeting of the American Economics Association I saw Ed Glaeser give a very good talk on real estate economics. His focus was on just how hard it is to do really systematic empirical or theoretical work in the field; probably the most memorable (and once you've heard it, blindingly obvious) point was that we don't even have a good model for land. Every single house is a unique object; even in communities stamped out with the regularity of a Levittown, views and proximity to the main road vary, and once the houses are old enough to be resold, how well it has been maintained, decorated, and renovated start to matter. The Case-Shiller index is the first attempt to systematize the entire market, and even there, it is geographically limited.

We complain about the insufficiencies of various national accounting measures: GDP doesn't take externalities, leisure, or home work into account; inflation measures are inaccurate; payroll and housing surveys increasingly tend to offer different pictures of the labor market. We forget what a luxury it is to have reasonably accurate figures gathered by a reasonably intelligent method, and compiled into data series that span decades. Reporting on the housing market is a great way to understand just how titanic an achievement was the work of Simon Kuznets.