One of the other criticisms of the Case-Shiller Home Price Indices that holds water in our estimation has to do with what home sales are included and excluded from the database. 

The indices are designed with very tight inclusion criteria – the tool is really designed to look at detached / semi-detached single family, owner occupied homes.  Excluded from the index are:  all new construction, condo’s and co-ops, multifamily units – even duplexes, non-arms length transactions (e.g. between family members), transactions immediately preceding or subsequent to substantial physical changes to a property (think rehab for sale or flips), as well as suspected data errors where the order of magnitude in values appears unrealistic.  The point – many of the exclusions to the Case-Shiller Home Price Indices are asset subclasses where some of the greatest valuation destruction has occurred in this market (new homes and condos in particular). 

Another respectable criticism include difficulties inherent in a computer driven matched pair screening process; not all family members have the same name for instance, and what about very common names like Smith, Jones, Rodriguez, etc.?  What from the tax record might suggest that a $40,000 kitchen remodel has been completed or more to the point perhaps today that the home has been significantly neglected? 

Tomorrow we’ll continue the Case-Shiller series with a look at few more weaknesses in the methodology that have been identified by various pundits and experts….

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