US: FHFA House Price Index

Wed Jul 22 08:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
M/M change 0.4% 0.2% to 0.7% 0.4% 0.3% 0.4%
Y/Y change 5.7% 5.3%

Home-price appreciation is respectable in the FHFA house price report, up 0.4 percent in May following an upward revised 0.4 percent in April. Year-on-year, FHFA's reading is a solid plus 5.7 percent which is the best rate since April last year. The index, at a level of 222.81, is about where it was way back in the bubble days of April 2006 and is 1.8 percent below its record peak in March 2007.

Regional differences among nine divisions ranged from a 1.1 percent monthly gain in the East North Central to a minus 0.6 percent decline in the East South Central. Year-on-year, price appreciation is strongest out West led by an 8.4 percent rise in the Pacific followed by a 7.8 percent gain in the Mountain region. At the slower end is the Mid-Atlantic at a year-on-year plus 0.9 percent followed by New England at plus 2.0 percent.

Home prices cooled early in the year in line with cooling in sales. But this year's spring acceleration for housing is very solid and is pointing, especially given lack of homes on the market, to continued acceleration this summer. Watch for the June existing home sales report later this morning at 10:00 a.m. ET.

Market Consensus Before Announcement
The FHFA house price index is expected to rise a respectable 0.4 percent in lagging data for May, 1 notch higher than April's more moderate 0.3 percent rise. Both this report and the Case-Shiller report pointed to price softness earlier in the year but with the spring acceleration in the housing sector, both reports should begin to pick up some steam.

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.