The correction in the CPI was justified. Housing prices reflect inter alia cap rates, and don't reflect the cost of consuming housing. It reflects the cost of an asset. Thus using housing prices distorted the CPI, up and down, as housing prices moved up and down.
I'll have to look into it more before I agree or disagree with you. Here's the article I got the chart from, in case you're interested:
http://www.thestreet.com/_tsclsii/comment/barryritholtz/10248963_2.html
Here's the article from the beginning (I only sent you page 2):
http://www.thestreet.com/_tsclsii/comment/barryritholtz/10248963.html