US: FHFA House Price Index

Tue Feb 27 08:00:00 CST 2018

Consensus Consensus Range Actual Previous Revised
M/M change 0.5% 0.4% to 0.5% 0.3% 0.4% 0.5%
Y/Y change 6.5% 6.5% 6.7%

The FHFA house price index did come in at a lower-than-expected 0.3 percent gain in December but readings are nevertheless pointing to strength. Year-on-year appreciation is at 6.5 percent with November's rate revised 2 tenths higher to 6.7 percent.

In slight contrast to the regional breakdown in the Case-Shiller report, the West is showing less exceptional strength in FHFA's data. The Mountain and Pacific regions are out front, at respective year-on-year gains of 9.0 and 8.6 percent, but the South Atlantic is very solid at 6.7 percent followed by the West South Central at 6.6 percent. Bringing up the rear but not by much is the West North Central at a still solid gain of 4.6 percent.

Home prices proved to be one of the major features of the 2017 economy and the outlook for 2018 is little different.

Market Consensus Before Announcement
The FHFA house price index, like Case-Shiller, has been showing solid strength. Forecasters see the index rising 0.5 percent in December.

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.