Typically, Real Estate markets have been dominated by homes sold between people who have relocated, have children and need more space, or have a desire to upgrade/downsize. For many obvious reasons, short sales and foreclosures have now become a much more significant part of the market.
As their influence in affecting market values continues to grow, I wonder how various housing indices track their effect. Constant quality indices such as the S & P’s Case/Shiller and OFHEO use sophisticated methodology to ensure more accurate reporting of housing data.
The main premise behind these indices is that they track the price fluctuations of homes of similar quality and condition. Foreclosed homes often have been abused by disgruntled home owners who have lost jobs and their primary residence. It is not unusual to see foreclosed property greatly damaged. How do these indices take into out changes in conditions? How do they ensure that these sales do indeed reflect a constant quality and at arm’s length transaction?
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