Shiller price index

Definition of the house price index (HPI)



What is the Housing Price Index (HPI)?

The Housing Price Index (HPI) is a general measure of the price movement of single-family homes in the United States. In addition to serving as an indicator of house price trends, it also serves as an analytical tool to estimate changes in mortgage default rates, prepayments and housing affordability.

Key points to remember

  • The Housing Price Index (HPI) is a general measure of price changes for single-family homes in the United States.
  • It is published by the Federal Housing Finance Agency (FHFA), based on monthly and quarterly data provided by Fannie Mae and Freddie Mac.
  • The HPI is one of the many economic indicators that investors use to keep pace with broader economic trends and potential changes in the stock market.

Understanding the House Price Index (HPI)

The IPH is reconstructed by the Federal Housing Finance Agency (FHFA), using data provided by the Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, and the Federal Home Loan Mortgage Corp. (FHLMC), commonly known as Freddie Mac.

The data is compiled by examining mortgages purchased or securitized by Fannie Mae and Freddie Mac.

The HPI is based on transactions involving and conforming mortgages on single-family properties. It is a weighted index of repeat sales, measuring the average price changes of repeat sales or refinancings. on the same properties.

An HPI report is published quarterly, although a monthly report has also been published regularly since March 2008.

Using the House Price Index (HPI)

The HPI is one of the many economic indicators that investors use to keep pace with broader economic trends and potential changes in the stock market.

Rising and falling house prices can have big implications for the economy. Price increases typically create more jobs, boost confidence, and lead to increased consumer spending. This paves the way for increased aggregate demand, boosting gross domestic product (GDP) and overall economic growth.

When prices fall, the opposite tends to happen. Consumer confidence is eroded and the many companies that profit from the demand for real estate are laying off staff. This can sometimes trigger an economic recession.

The Covid-19 pandemic does not appear to have affected the appetite for real estate. In February 2021, the FHFA reported that house prices from the fourth quarter of 2019 to the fourth quarter of 2020 had increased by 10.8%.

The House Price Index (HPI) vs. S&P CoreLogic Case-Shiller House Price Indexes

HPI is not the only home price tracking tool. One of the more well-known alternatives is the S&P CoreLogic Case-Shiller Home Price Indices.

These indices use different data and measurement techniques and, therefore, produce varying results. For example, the HPI weights all homes the same, while the S&P CoreLogic Case-Shiller Home Price indices are value-weighted.

Additionally, while the Case-Shiller indices only use purchase prices, the HPI All-Trade also includes refinance valuations. The HPI also offers wider coverage.

Fannie Mae and Freddie Mac

As previously mentioned, the HPI measures changes in the average price of homes sold or refinanced by looking at mortgages purchased or guaranteed by Fannie Mae or Freddie Mac. It means loans and mortgages from other sources, such as the United States Department of Veterans Affairs and the Federal Housing Administration (FHA), are not included in its data.

Fannie Mae

Fannie Mae is a government sponsored company (GSE) that is publicly traded but operates under a congressional charter. The company’s objective is to maintain liquidity in the mortgage markets. It does this by purchasing and guaranteeing mortgages from actual lenders, such as local and state credit unions and banks – Fannie Mae cannot grant loans directly.

FNMA increases liquidity in mortgage markets and makes homeownership easier for low-, middle- and middle-income Americans by creating a secondary market. Fannie Mae was created in 1938 during the Great Depression as part of the New Deal.

Freddie mac

Like Fannie Mae, Freddie Mac or the FHLMC, he is also a GSE. It buys, guarantees and securitizes mortgages to form Mortgage Backed Securities (MBS). It then issues liquid MBS with a credit rating generally close to that of US Treasuries.

Due to his ties to the US government, Freddie Mac can borrow money at interest rates generally lower than other financial institutions.



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