US: FHFA House Price Index

Thu Feb 23 08:00:00 CST 2017

Consensus Consensus Range Actual Previous
M/M change 0.4% 0.4% to 0.5% 0.4% 0.5%
Y/Y change 6.2% 6.1%

Monthly appreciation for the FHFA house price index came in at the 0.4 percent consensus for December with the year-on-year rate up 1 tenth to a solid 6.2 percent. The 6.2 percent rate is also same as the fourth-quarter to fourth-quarter comparison. A look at the quarter shows Oregon at the top at 11.0 percent followed by Colorado at 10.6 percent and Florida at 10.4 percent. By cities, Petersburg-Clearwater, Florida is at the top at 13.2 percent in the quarter with Wilmington, Delaware at the bottom at minus 1.8 percent. In a low wage growth, low interest rate economy, home price appreciation has been a steady and solid positive for household wealth.

Market Consensus Before Announcement
Another solid gain is the call for the FHFA house price index where the consensus is calling for a 0.5 percent December gain, in what would be unchanged from November. Year-on-year, this index has been running just above the 6 percent line in one of the best price performances of any measure.

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.

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.