US: FHFA House Price Index

Wed Oct 25 08:00:00 CDT 2017

Consensus Consensus Range Actual Previous Revised
M/M change 0.4% 0.1% to 0.5% 0.7% 0.2% 0.4%
Y/Y change 6.6% 6.3% 6.5%

Home prices remain very firm, up a higher-than-expected 0.7 percent in August vs an upward revised 0.4 percent gain in July. The year-on-year rate is up 1 tenth and back near a 4-year high at 6.6 percent. The Pacific, at a yearly 9.3 percent gain, has moved out in front of the Mountain region at 8.3 percent. The Mid-Atlantic is in the rear as it often is, up however a still solid 5.0 percent.

FHFA prices have been holding over the 6 percent appreciation line all year with Case-Shiller data just below. Today's report will raise estimates for next week's Case-Shiller report.

Market Consensus Before Announcement
Appreciation in home prices has been perhaps this year's best economic story, running at roughly a 6 percent annual rate and giving an important lift to household wealth. Yet appreciation has been slowing in recent months in line with weakness in home sales. The FHFA house price index managed only a 0.2 percent monthly gain in July with the rate expected to rise to 0.4 percent in August.

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.