US: FHFA House Price Index

Tue Apr 24 08:00:00 CDT 2018

Consensus Consensus Range Actual Previous Revised
M/M change 0.5% 0.4% to 0.8% 0.6% 0.8% 0.9%
Y/Y change 7.2% 7.3% 7.4%

The FHFA house price index, like Case-Shiller data also released this morning, shows extending strength in home prices. FHFA's index rose 0.6 percent in February which is 1 tenth above the consensus and on top of January's 0.9 percent rise. Year-on-year, the index is up 7.2 percent which is just off the upward revised 7.4 percent rate of January, a 4-year high.

Price traction is strongest out West with the Pacific up 10.3 percent year-on-year followed by the Mountain region at 9.0 percent. Growth is strong across all 9 regions in the survey with the Middle Atlantic in the rear but at a still respectable 4.8 percent rate.

Low supply is a major factor behind price appreaction, which proved last year to be solid source of household wealth.

Market Consensus Before Announcement
Growth in the FHFA house price index, which shot higher in January, is expected to slow in February to a consensus monthly gain of 0.5 percent. The year-on-year rate for this index burst over the 7 percent line in January to a 3-1/2-year high of 7.3 percent. Cities in the Pacific and Mountain states have running at or near 10 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.