US: FHFA House Price Index

Tue Aug 25 08:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
M/M change 0.4% 0.3% to 0.6% 0.2% 0.4% 0.5%
Y/Y change 5.6% 5.7%

FHFA and Case-Shiller are both telling the same story: Home prices were soft going into the summer. FHFA's home price index rose only 0.2 percent in June, below the low-end forecast for 0.3 percent. Year-on-year, price growth slipped 1 tenth to 5.6 percent. This report has been showing slightly more strength than Case-Shiller where year-on-year price appreciation is at 5.0 percent.

Sales rates are tracking at roughly double the pace of price growth, a mismatch that points ahead to price acceleration given how thin inventories are right now in the housing sector. The regional breakdown for FHFA looks healthier than the headline with seven of nine regions showing monthly gains led by a 2.5 percent monthly surge in New England.

Market Consensus Before Announcement
The FHFA house price index is expected to post a third straight solid gain of 0.4 percent in June. This report has been showing some strength in contrast to Case-Shiller data which have been soft.

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.