On Wednesday, Associated Press Business Writer J.W. Elphinstone used a curious definition of "narrow" to emphasize the importance of a home-price measurement index that only looks at the country's largest metro areas, while minimizing the significance of one that catalogs virtually the entire USA -- all apparently done to create an overwrought portrayal of home values as being "in freefall."

Here is how Elphinstone's report began:

No end in sight: Housing in freefall until credit loosens and supply recedes, experts say

House prices may still have a long way to fall.

Across much of the nation, home values are dropping -- even those backed by solid mortgages -- and banks are repossessing more every day. Most experts say the dive won't hit bottom for another year and only after excess inventory is sharply reduced and credit markets improve.

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More government intervention may be needed, too, if the free market system doesn't work quick enough. (should read "quickly enough" -- Ed.)

"The housing value crisis is spreading and deepening," said David Abromowitz, a senior fellow at the Center for American Progress. "It has gone way beyond subprime borrowers stretched too far with bad loans and now has clearly extended into the housing markets more broadly."

U.S. home prices dropped 8.9 percent in the final quarter of 2007 compared with a year ago, according to the Standard & Poor's/Case-Shiller home price index released Tuesday. That marked the steepest decline in the index's 20-year history.

Meanwhile, the narrower Office of Federal Housing Enterprise Oversight said Tuesday that nationwide prices dipped 0.3 percent in the fourth quarter, the first annual decline in 16 years. Eleven states posted declines in values for the year, while prices in nine states appreciated more than 5 percent.

The OFHEO index is calculated using mortgages of $417,000 or less that are bought or backed by government-sponsored mortgage companies Fannie Mae or Freddie Mac. That excludes properties bought with some of the riskier types of home loans or homes in more expensive markets like California and the Northeast.

The AP reporter's description of price drops was at best very vague. For both Case-Shiller and OFHEO, the reality is that the price drops occurred over a period of a full year (four quarters). That is not at all clear in the way Elphinstone wrote it up; for both indices, the changes are described as taking place "in the quarter." Here's a better writeup for one of the two, provided by yours truly at no charge: "The S&P/Case-Shiller index shows that fourth-quarter 2007 home prices in the 20 cities it measured were 8.9% lower than they were in the fourth quarter of 2006."

Oh, did I say "20 cities"? Yes I did. Elphinstone's characterization of OFHEO's index as "narrower," and his implication that Case-Shiller's measurement is "nationwide," were both flat-out wrong.

Here is how OFHEO describes its House Price Index (bold is mine):

The HPI is a broad measure of the movement of single-family house prices.

..... The HPI serves as a timely, accurate indicator of house price trends at various geographic levels. Because of the breadth of the sample, it provides more information than is available in other house price indexes.

The HPI includes house price figures for the nine Census Bureau divisions, for the 50 states and the District of Columbia, and for Metropolitan Statistical Areas (MSAs) and Divisions.

This related story at the Rocky Mountain News last week noted the true scope of the two indices:

(The) Case Shiller report shows a 9.1 percent decline for 20 U.S. cities last year.

The OFHEO report tracks 291 metropolitan areas across the country.

(Note: The Rocky Mountain News's 9.1% decline is Case-Shiller's reported December 2007 to December 2006 comparison, while the AP's 8.9% drop is Case-Shiller's fourth quarter 2007 vs. fourth quarter 2006 result.)

For Elphinstone, a measurement of 291 metro areas in all 50 states is "narrower" than one that looks at 20 in only 17.

Not around here, pal.

Is it a mere coincidence that the truly narrower Case-Shiller report is the one Elphinstone used to paint a picture of a comprehensive (and now correctly hyphenated) "free-fall"?

While the AP writer correctly noted that OFHEO only looks at mortgages of $417,000 or less, its reported results undermines the "crisis" mentality and the supposed need for government intervention.

Activity in higher-priced homes significantly affects the S&P/Case-Shiller index. This is especially the case in the six California and Northeast markets it tracks (Los Angeles, San Francisco, San Diego, New York, Boston, and Washington).

It's likely, based on the comparative results (Case-Shiller down 8.9% in 12 months in 20 relatively high-cost urban areas; OFHEO down only 0.3% in the entire country), that the "free-fall," which less hysterical observers would describe as a "drop" or "correction," is largely occurring in the higher end of the market.

If that's the case, you'll have to excuse me if I wonder why more government intervention is needed because relatively well-to-do folks are seeing their home values decline -- and why an AP reporter would speculate about the need for more intervention in a supposedly "objective" yet clearly incomplete and misleading report.

Cross-posted at BizzyBlog.com.

—Tom Blumer is president of a training and development company in Mason, Ohio, and is a contributing editor to NewsBusters