US: FHFA House Price Index

Thu Dec 21 08:00:00 CST 2017

Consensus Consensus Range Actual Previous Revised
M/M change 0.4% 0.4% to 0.5% 0.5% 0.3% 0.5%
Y/Y change 6.6% 6.3% 6.5%

Home prices are one of 2017's best stories, reflected in the latest FHFA data where the house price index rose 0.5 percent in October with September revised 2 tenths higher and now also at a 0.5 percent gain. Year-on-year, rose prices were up 6.6 percent in October and 6.5 percent in September which is strong appreciation in a low interest rate, low inflation economy. The West leads the nation with the Pacific states up 8.7 percent year-on-year followed by the Mountain states at 8.2 percent. The South Central at 5.5 percent and New England at 5.7 percent lag but at still solid rates.

Market Consensus Before Announcement
Home prices have been one of the strongest areas of the 2017 economy though FHFA's house price index did slow in the last report to only 0.3 percent monthly growth for a year-on-year rate of 6.3 percent which is the lowest since January. A little bounce is expected for November where the consensus is calling for a 0.4 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.