US: FHFA House Price Index

Thu Jan 22 08:00:00 CST 2015

Consensus Consensus Range Actual Previous
M/M change 0.3% 0.2% to 0.6% 0.8% 0.6%
Y/Y change 5.3% 4.5%

Home prices may be signaling improvement in the housing sector. FHFA home prices gained 0.8 percent in November, following a 0.4 percent rise the month before. Market expectations were for a 0.3 percent increase for November. The year-ago rate posted at 5.3 percent from 4.4 percent in October.

Housing is not gangbusters but perhaps this sector is gaining a little traction. A caveat is that seasonal factors are large during winter months. The next reading on home prices is the Case-Shiller report, released Tuesday, January 27.

Market Consensus Before Announcement
The FHFA purchase only house price index showed unexpected strength in October, gaining 0.6 percent after no change in September. Analysts forecast a 0.2 percent rise for October. The year-ago rate firmed to 4.5 percent from 4.4 percent in September. Regionally, six Census regions reported gains in October while three declined. Housing may be showing improved demand but this is just one month's report.

The Federal Housing Finance Agency (FHFA) House Price Index (HPI) covers single-family housing, using data provided by Fannie Mae and Freddie Mac. The House Price Index is derived from transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. In contrast to other house price indexes, the sample is limited by the ceiling amount for conforming loans purchased by these government-sponsored enterprises (GSE). Mortgages insured by the FHA, VA, or other federal entities are excluded because they are not "conventional" loans. The FHFA House Price Index is a repeat transactions measure. It compares prices or appraised values for similar houses. But markets focus on the report's purchase-only index.

Home values affect much in the economy - especially the housing and consumer sectors. Periods of rising home values encourage new construction while periods of soft home prices can damp housing starts. Changes in home values play key roles in consumer spending and in consumer financial health. During the first half of this decade sharply rising home prices boosted how much home equity households held. In turn, this increased consumers' ability to spend, based on wealth effects and from being able to draw upon expanding home equity lines of credit.

With the onset of the credit crunch in mid-2007, weakness in home prices has had the reverse impact on the economy. New housing construction has been impaired and consumers have not been able to draw on home equity lines of credit as in recent years. But an additional problem for consumers is that a decline in home values reduces the ability of a home owner to refinance. During 2007, 2008, and into 2009 this became a major problem for subprime mortgage borrowers as adjustable rate mortgages reached the end of the low, "teaser rate" phase and ratcheted upward. Many subprime borrowers had bet on higher home values to lead to refinancing into an affordable fixed rate mortgage but with home equity values down, some lenders balked at refinancing subprime borrowers.