US: FHFA House Price Index

Tue May 26 08:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
M/M change 0.7% 0.6% to 1.2% 0.3% 0.7% 0.6%
Y/Y change 5.2% 5.4% 5.3%

The FHFA house price index rose a lower-than-expected 0.3 percent in March, not confirming a much stronger 1.0 percent gain for the S&P Case-Shiller index also released this morning at 9:00 a.m. ET. The gain for FHFA is below low-end Econoday expectations though the year-on-year came in at a respectable plus 5.2 percent, down only one notch from February's revised 5.3 percent.

The breakdown for FHFA is positive, showing gains in 7 of 9 regions led by the East North Central, East South Central, and the Middle Atlantic. A second straight decline was posted in the West South Central with New England also in the minus column. Year-on-year, the West North Central and Middle Atlantic are the weakest at plus 3.2 percent and plus 3.5 percent with the Mountain region the strongest at plus 7.2 percent followed by the Pacific at plus 6.8 percent.

House prices are far from frothy to say the least but nevertheless are, in sum, moving in the right direction. Watch for new home sales coming up later this morning at 10:00 a.m. ET.

Market Consensus Before Announcement
FHFA house prices are expected to rise a solid 0.7 percent in March. Gains in this report, as well as the S&P Case-Shiller report, would hint at momentum for housing going into the spring selling season.

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.