US: FHFA House Price Index

Tue Sep 22 08:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
M/M change 0.4% 0.3% to 0.8% 0.6% 0.2% 0.2%
Y/Y change 5.8% 5.6%

Home prices cooled late in the second quarter but began to pick up in July based on FHFA's house price index which rose a higher-than-expected 0.6 percent with the year-on-year rate at plus 5.8 percent. This is the largest monthly gain since February this year and the largest year-on-year gain since April last year.

The strongest gains were in the West led by the Mountain region at 1.6 percent in the month. Only two of nine regions declined in the month with New England at a steep minus 1.2 percent. Year-on-year, Mountain is out in front at a very strong plus 9.4 percent with New England bringing up the tail end but still in positive ground at plus 2.1 percent.

Case-Shiller won't be released until next week but today's report should raise expectations for strength. For the housing outlook, this report helps offset weakness in yesterday's existing home sales report. New home sales will be posted on Thursday.

Market Consensus Before Announcement
Home sales have been respectable but indications on home prices have been soft. Following an undersized 0.2 percent rise in June, forecasters see a respectable 0.4 percent gain in July for the FHFA house price index.

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.