US: FHFA House Price Index

January 25, 2017 08:00 CST

Consensus Consensus Range Actual Previous Revised
M/M change 0.5% 0.3% to 0.6% 0.5% 0.4% 0.3%
Y/Y change 6.1% 6.2%

Home price growth was firm in November, at plus 0.5 percent for the FHFA house price index, though October's growth has been revised 1 tenth lower to 0.3 percent. Year-on-year price growth remains above the 6 percent line at 6.1 percent. The strongest region continues to be the Pacific, at a year-on-year 7.7 percent, with the Mid-Atlantic in the rear but at a still respectable plus 4.7 percent. Growth in the rival Case-Shiller report, in contrast to this report, has been at the 5 percent line.

Market Consensus Before Announcement
Annual growth for the FHFA house price index has been running near 6 percent, in contrast to Case-Shiller data where growth is near 5 percent. FHFA monthly growth slowed in November to 0.4 percent but followed strong gains of 0.6 and 0.7 percent in the prior two months. Forecasters see November picking up some steam, at a consensus monthly gain of 0.5 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.

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.