Distressed Sales and the FHFA House Price Index

Trends in residential house values can be expressed by changes in house price indexes (HPIs). Since the recent housing crash, distressed sales have increased in numbers and have led to concerns about how they affect HPIs. This paper has three parts. First, the Federal Housing Finance Agency's (FHFA's) standard HPIs are compared to HPIs constructed without distressed sales. Second, FHFA's identification of distressed sales is validated against a public data source. Third, the distressed sale discount is shown to vary across time and place. The magnitude of the discount also depends on whether the current or prior recent sales are distressed.