US: FHFA House Price Index

Tue Nov 28 08:00:00 CST 2017

Consensus Consensus Range Actual Previous Revised
M/M change 0.6% 0.4% to 0.7% 0.3% 0.7% 0.8%
Y/Y change 6.3% 6.6% 6.7%

Home prices continued to rise in September in what, however, are mixed signals from this morning's FHFA and Case-Shiller reports. FHFA's house price index rose 0.3 percent which is just below Econoday's low estimate. The year-on-year rate of 6.3 percent is the lowest since January. Easing the impact of the short falls are 1 tenth upward revisions to August where the monthly gain is now an unusually strong 0.8 percent with the yearly gain at 6.7 percent. Case-Shiller's September data came in at the high end of expectations with a 0.5 percent monthly rise for the 20-city adjusted index and a year-on-year of 6.2 percent which is the best in 3-1/2 years.

Taking these two reports together, home prices appear to be steady at a roughly 6 percent annual rate which is rich in a low inflation, low interest rate economy. Details in FHFA data have the West North Central region leading September at a 0.9 percent monthly gain and the East South Central the only region in monthly contraction, at minus 0.4 percent. The Pacific region leads the year-on-year rate at 8.7 percent.

Market Consensus Before Announcement
Appreciation in home prices has been one of this year's best economic stories and proved unusually strong in August for the FHFA house price index which jumped 0.7 percent. Forecasters see the index nearly matching that strength in September with a consensus 0.6 percent gain.

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.