US: FHFA House Price Index

Thu May 24 08:00:00 CDT 2018

Consensus Consensus Range Actual Previous Revised
M/M change 0.6% 0.6% to 0.7% 0.1% 0.6% 0.8%
Y/Y change 6.7% 7.2% 7.4%

Home prices slowed in March based on the FHFA house price index which rose only 0.1 percent for the lowest result in more than three years. And after two months above 7 percent, the year-on-year rate fell 7 tenths to 7.4 percent. An offset to March's weakness is unusual strength in February which is revised 2 tenths higher to an 0.8 percent monthly gain and revised 2 tenths higher for the yearly rate to 7.4 percent.

The mountain region at 9.4 percent and the pacific region at 8.7 percent lead the data with New England, at 4.7 percent, bringing up the rear. Despite the slowing in today's report, home prices continue to show strong appreciation. Watch next week for Case-Shiller data.

Market Consensus Before Announcement
The FHFA house price index is expected to rise 0.6 percent in March, extending its run of strength this year. The year-on-year rate, at 7.2 percent in February, was just off January's 4-year high at 7.4 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.