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Due to the lag time in reporting home sales, the Federal Housing Finance Agency (FHFA) will often update the previous estimates of house price appreciation and depreciation; revisions that appear to mitigate swings in price movement over time.

According to the FHFA, the updates to their purchase-only house price index (HPI) since Q404 show a tendency to dampen house price volatility. Indeed, the last monthly HPI from the agency showed national prices rose 0.7% on a seasonally adjusted basis from October to November. That was after October's previously reported 0.6% increase was adjusted to 0.4%.

These revisions have reduced the appreciation measured during the boom (2004-Q207) by 2.3%. They also mitigated the depreciation measured during the subsequent bust (Q307-present) by 3.3%, as of the Q309 release:

Historic revisions to the HPI seen in the Q309 release (compared above with an unrevised HPI, in red), scale back the appearance of growth in house prices during the boom up to mid-2007, as well as reduce the rate of price decline in the bust phase ever since.

But revisions also simultaneously amplify the measured one-period appreciation rates during the boom, FHFA said. That's partly because mortgage originations can take 30 to 45 days to show up in the database.

Quarterly releases often incorporate a number of transactions from the previous period that were not added in time to be calculated into the previous report, known as lag-time in analytics. In the recent boom phase, the revisions to include these transactions tended to elevate the appreciation during that period if a lot of high-appreciating transactions were added. Similarly, revisions during the bust phase tend to reflect elevated levels of depreciation when many high-depreciating transactions are added to previous reporting periods.

Over the long term, revisions still have a dampening effect on the volatility of house price movements. For example, FHFA said, houses that sold in the recent boom were more likely to experience significant price appreciation than unsold houses. High-appreciating transactions were over-represented in the HPI calculations. But as time went on and less-appreciating houses sold in the latter part of the boom, or in the bust, these transactions would have a dampening effect on the appreciation seen during the boom.

Similarly, homes sold during the bust were more likely to experience high depreciation "because their owners needed to relocate or were unable to refinance when they ran into financial trouble," FHFA said. As other less-depreciating houses begin to sell in the latter part of the bust, or during the recovery, these transactions tend to mitigate the estimated depreciation rate during the bust.

Write to Diana Golobay.