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Federal home-price trackers have finally rebuilt a tool to their workbench — an new index that raises as many questions as it answers.

The Federal Housing Finance Authority — the regulator of Fannie Mae, Freddie Mac and Federal Home Loan Banks previously known as “OFHEO” — has updated its home-price index to include tracking local prices by both its traditional-yet-unorthodox mix of sales data and appraisal valuations from refinancings and its newly minted “purchase only” methodology.

These indexes draw their data from the mortgages bought, sold or held by Fannie and Freddie — and, thus, show what’s going in in more “affordable” communities where the smaller loans that these agencies buy are widely used. Some critics have argued that the long-running inclusion of appraisals in the math — that is, the human guesstimate from the appraiser vs. the economic pureness of a price in sales transaction — was skewing the results.

Well, those critics may have been proven correct. But what the skew means, is up for discussion.

In Orange County, from 1992 to 2009’s 1st quarter, the traditional index (appraisals/purchases) shows local home values increasing at an annual average rate of 5.2%. That’s slightly higher than the 5% average annual gain found by the “purchase only” math. One could say that makes some sense as homes that are being refinanced tend to be better performing and owned by better financed owners who may be better at upkeep, too.

But take a look at how the various ebbs and flows — especially in the accompanying chart! …

• From 1992 to 1996, the end of the last great real estate debacle, the addition of the human eye — in the form of the purchase/appraisal index — resulted in lower average losses: 3.7% vs. 4.1% for the purchase only index.
• As the recovery bubbled up, from 1997 to 2002, the human eye found lower gains. The purchase/appraisal index found average price hikes of 8.7% vs. 10.1% from the purchase-only index.
• As the boom glowed red hot, the human eye saw more gold. The appraisal/purchase index rose 18% a year on average vs. 16.9% for the purchase only marker.
• Since 2006 — the grand collapse — the human eye has seen slightly less devastation. The appraisal/purchase index found annualized average losses of 10.9% vs. 11.9% for the purchase only index.

Pondering these patterns, I’m guessing …

• Appraisers are a bit slow to catch on to trends. That’s probably what you want them to do.
• Appraisers were late to see the boom starting in the late 1990s. Healthy skepticism.
• Then, as the boom approached the peak, appraisers were slow to see warning signs — likely under some pressures from borrowers and lenders, both blinded by previous profits, who doubted the third-party skepticism.
• And, finally, the appraisers haven’t yet kept up with the price declines as foreclosure-fed discounting makes valuations tricky.

I’m not blaming appraisers here. Being wary of trends — good or bad — is often a desirable trait.

Other pricing news …