US: FHFA House Price Index

Thu Oct 22 08:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
M/M change 0.5% 0.4% to 0.9% 0.3% 0.6% 0.5%
Y/Y change 5.5% 5.8%

Home-price appreciation slowed in August, to plus 0.3 percent for FHFA's house price index which is just below the low end of the Econoday consensus and down from a revised 0.5 percent gain in July. Year-on-year appreciation, which had been edging up toward 6 percent in this report, moved down to 5.5 percent.

All regions show year-on-year gains, ranging from plus 2.2 percent for the Mid-Atlantic to plus 8.3 percent for the Mountain region. The monthly reading for August ranges from minus 0.4 percent for the East North Central to plus 0.8 percent for the East South Central.

This report is a surprise given signs of firmness in the housing sector and is now falling more in line with Case-Shiller data where appreciation has been more modest.

Market Consensus Before Announcement
House prices have been on the climb, boosted by limited homes on the market and a lower share of distressed homes. The FHFA house price index, after jumping 0.6 percent in the prior report, is expected to post another very solid gain of 0.5 percent in data for August. Year-on-year, price growth in this report is approaching 6.0 percent.

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.