US: FHFA House Price Index

Tue Mar 24 08:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
M/M change 0.5% 0.3% to 1.7% 0.3% 0.8% 0.7%
Y/Y change 5.1% 5.4% 5.4%

House prices continued to rise in January but at a slower pace. FHFA house prices advanced 0.3 percent, following a gain of 0.7 percent in December. Analysts projected a 0.5 percent gain for January. The year-ago rate came in at 5.1 percent, compared to 5.4 percent in December.

Regionally, six Census regions reported gains in January while three declined.

Home prices continue to be the positive facet of the housing sector. Adverse weather may be the reason for softening in price growth.

Market Consensus Before Announcement
The FHFA purchase only house price index gained 0.8 percent in December, following a 0.7 percent boost in November. Market expectations were for a 0.5 percent gain in December. The year-ago rate posted at 5.4 percent from 5.2 percent in November. Housing appreciation is the one facet of housing that in recent months has been consistently on an uptrend.

This report along with the Case-Shiller report trended higher going into year-end, perhaps offering some explanation for the January spike in consumer confidence. It is important to remember that price data in the existing home sales and new home sales reports, which unlike Case-Shiller and

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.