If it was a simple median price index that had increased then I may agree with you.disagree completely. all this means is that cheaper houses aren't selling (or more to the point demand was dragged forward and is now satisfied) - not sure if anyone benefits from this?
However, it's the Hedonic Index that has increased by 12% over the last 12 months (including 2% in Jan & 1.4% in Feb) - it allows for the composition of houses.
From the Rismark site
....This index utilises comprehensive information on the attributes and characteristics of residential properties, such as location, land size, and bedrooms, to measure “quality-adjusted” changes in property value over time.
If (as you suggest) a smaller number of low quality properties sells then the index is unaffected.