A strong spring season helped home values recover, says the government.

According to the Federal Home Finance Agency’s Home Price Index, home prices rose a seasonally-adjusted 0.4 percent from April to May.

It’s the HPI’s second straight increase, and puts the monthly index at its highest point since January 2011.

As a home seller in Palo Alto , you may appreciate news such as “rising home prices”, but it’s important to remember that the Home Price Index has a several built-in flaws — the biggest of which its age.

Today, the calendar nearly reads August, yet, we’re still discussing May’s housing data. A 2-month delay does little to help buyers and sellers wanting to know the “right now” of housing.

Unfortunately, the Home Price Index data is even more aged than that.

Because the FHFA’s Home Price Index measures home prices as recorded at closing, the actual sales prices included in the index are from real estate contracts written 30-60 days prior.

In other words, when we look at the Home Price Index report for May, what we’re really seeing is a snapshot of the housing market as it existed in March. March’s housing market has little to do with the forces driving home prices today.

Today’s real estate market is driven by today’s economics.

The Home Price Index is a useful gauge for economists and law-makers; it shows long-term national trends in the housing market which can be used to allocate resources to a project, or to form new policy. For home buyers across the state of San Francisco Bay Area , though, it’s less helpful.

For today’s real estate buyers and sellers, there’s no substitute for real-time data. For that, talk to a real estate professional.

Home values dropped for the sixth straight month in March 2011, according to the Federal Home Finance Agency’s Home Price Index. The Home Price Index is a government-sponsored home value tracker.

The HPI report is the latest in a string of “falling home values” stories — a trend that’s troubling home sellers across Mountain View and nationwide.

However, although the Home Price Index says home values are falling, that doesn’t necessarily mean that they are. Like most statistics in the housing sector, the Home Price Index is plagued by poor methodologies and a lack of timeliness.

In short, the Home Price Index is flawed. In three ways.

The first big flaw in the Home Price Index is that it only measures the values of homes with mortgages backed by Fannie Mae or Freddie Mac. Homes financed via FHA, or via other means are specifically excluded from the calculation. For today’s purchase market, that leaves more than 1 in 4 homes “uncounted” — a big percentage of the market.

Second, the Home Price Index determines home values by measuring price change from sale to subsequent sale. This eliminates new homes — a major market segment.

And, lastly, the Home Price Index reports on a 60-day delay; we’re only now seeing data from March. This two-month lag renders the HPI a trailing indicator for the housing market instead of a forward-looking one. If you’re a home buyer looking for market insight, the HPI can’t give it — it’s out-dated and out of season.

Despite its shortcomings, though, we can’t ignore the Home Price Index completely. It’s among the most thorough home valuation models available, and it’s used in public policy discussions. When the HPI says prices are down, Wall Street and Capitol Hill take notice, and that trickles down to everyday life on Main Street.

Since peaking in April 2007, the Home Price Index is off 19.1 percent.

In an echo of February’s Case-Shiller Index report, the government’s own home price-tracker — the Home Price Index — showed home values slipping between January and February 2011.

The Federal Home Finance Agency data had home values down 1.6 percent nationwide in February, on average, marking the fourth straight month in which prices fell.

Furthermore, all 9 regions posted losses from the month prior:

• Mountain Region : -3.7% from January
• East South Central : -0.6% from January
• South Atlantic : -0.9% from January
• New England : -2.0% from January

Before you draw conclusions, however, note that the data at which we’re looking has several major flaws to it.

First, it’s old. We’re now in the first week of May and the FHFA’s most recent release only covers through February, a time period ending roughly 60 days ago. That’s a long delay and today’s purchase market in Palo Alto looks much different from the one of February.

Just ask a real estate agent and they’ll tell you — purchase activity is rising.

Second, the FHFA Home Price Index reports on home value changes between consecutive Fannie Mae or Freddie Mac-securitized transactions only. This might be creating an overweight of “distressed properties” in the index which, in turn, drags down valuations.

Distressed homes account for 40% of all home resales and typically sell at 20 percent discounts.

And, lastly, although the Home Price Index is a national report, real estate as a market is decidedly not national. To the contrary, it’s extremely local. As an individual, you don’t buy, sell or own homes in all 50 states. You buy them in a specific state, and a specific neighborhood ; in places like North Palo Alto.

The national data is useless to you in that respect.

We can’t discount the Home Price Index data entirely, but should remember that it paints a clearer picture of where housing has been versus where housing is going. As a home buyer or homeowner, it’s the future of home values that matters more.

Home values were reported unchanged in November 2010, on average, according to the Federal Home Finance Agency’s Home Price Index.

We say “on average” because the government’s Home Price Index is a data composite for the country. The index doesn’t measure citywide changes in places like Palo Alto , nor does it get granular down to the neighborhood level to measure places like North Palo Alto.

Instead, the Home Price Index groups state data in 9 regions with each regions having as few as 4 states in it, and as many as 8.

Not surprisingly, each of the regions posted different price change figures for the period of October-to-November 2010.

A sampling includes:

• Values in the Pacific region rose +1.2%
• Values in the New England region rose +0.3%
• Values in the Mountain region fell -1.9%

The complete regional list is available at the FHFA website.

That said, none of these numbers are particularly helpful to today’s home buyers and sellers and that’s because everyday people don’t buy and sell homes on the Regional Level. We do it locally and the government’s Home Price Index can’t capture data at that level.

It’s a similar reason to why the Case-Shiller Index is irrelevant to buyers and sellers.

November’s Case-Shiller Index showed home values down 1 percent in November, but that conclusion is a composite of just 20 cities nationwide — and they’re not even the 20 largest cities. Philadelphia, Houston and San Jose are conspicuously absent from the Case-Shiller list.

So why are reports like the Home Price and the Case-Shiller Index even published at all? Because, as national indicators, they help governments make policy, businesses make decisions, and banks make guidelines. Entities like that are national and require data that describe the economy as a whole. Home buyers and sellers, by contrast, need it locally.

Since peaking in April 2007, the Home Price Index is off 14.9 percent.

Earlier this week, the private-sector Case-Shiller Index showed home prices slightly lower between November and December.  Thursday, the public-sector Home Price Index showed the same.

Publishing on a 2-month lag, the Federal Home Finance Agency said home prices fell by 1.6 percent nationally in December.  And that’s an average, of course.  Some regions performed well in December as compared to November, others didn’t.

• Values in the Middle Atlantic states improved slightly
• Values in New England were essentially unchanged
• Values in the Mountain states sagged, down 3.5%

These aren’t just footnotes. They’re an important piece toward understanding what national real estate statistics really mean. In short, “national statistics” are just a compilation of a bunch of local statistics.

For example, if we dig deeper into the FHFA Home Price Index 70-page report, we find that cities like Terre Haute, IN, Buffalo, NY, and Amarillo, TX posted year-over-year home price gains. You won’t see that in a “national” report.

Furthermore, it’s a sure bet that those same cities, you could find neighborhoods that are thriving, and others that are not.  Just because the city shows higher home values overall, it won’t necessarily be the case for every home in the city.

Every street in every neighborhood of every town in America has its own “local real estate market” and, in the end, that’s what should be most important to today’s buyers and sellers.  National data helps identify trends and shape government policy but, to the layperson, it’s somewhat irrelevant.

So, when you need to know whether your home in Palo Alto is gaining or losing value, you can’t look at the national data.  You have to look at your block — what’s selling and not selling — and start your valuations from there.