US: FHFA House Price Index

Tue Jun 23 08:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
M/M change 0.4% 0.3% to 0.6% 0.3% 0.3% 0.3%
Y/Y change 5.3% 5.2%

Some indications on home prices are on the strong side but not the FHFA house price index which nevertheless is still in the plus column, at a moderate 0.3 percent in April for a second straight month. The year-on-year rate, at plus 5.3 percent in April, has been flat so far this year.

Regional differences are narrow with the West North Central showing the strongest monthly gain at plus 1.4 percent and the East North Central showing the sharpest decline at minus 0.8 percent. Year-on-year, growth is softest in the Middle Atlantic, up 2.3 percent, and strongest in the Pacific, up 7.5 percent. Again, these are narrow readings suggesting that the whole tide for housing is up.

The year-on-year rates in this report roughly match those in Case-Shiller but both of these reports lag substantially in time. The housing sector, beginning in May, began its 2015 lift off that in some of the data, like yesterday's existing home sales report, looks almost spectacular -- which of course points to pricing power in a seller's market. Coming up at 10:00 a.m. ET on the calendar are new home sales for May.

Market Consensus Before Announcement
The FHFA house price index has been lagging other readings on home prices but has still been moving in the right direction. The expected gain of 0.4 percent isn't spectacular but is respectable.

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.