US: FHFA House Price Index

Thu Jun 21 08:00:00 CDT 2018

Consensus Consensus Range Actual Previous Revised
M/M change 0.5% 0.3% to 0.8% 0.1% 0.1% 0.2%
Y/Y change 6.4% 6.7% 7.0%

The number of homes on the market may be low but price indications are slowing. The FHFA house price index edged only 0.1 percent higher in data for April which follows an upward revised but nearly as soft 0.2 percent increase in March (the two months together mark a clear slowdown that is visible in the graphs below, at 0.15 percent in April and 0.19 percent in March going out to two decimals). The year-on-year rate, which peaked at 7.4 percent early in the year, is down to 6.4 percent in today's report.

Despite the slowing, indications still hint at possible bubbles in the Mountain region, up 0.4 percent in the month for an 8.9 percent year-on-year rate, though the Pacific region did ease with only a 0.1 percent gain and an 8.3 percent on-year rate. The West South Central is bringing up the rear, down 0.5 percent in the month for a still respectable 4.6 percent yearly rate.

Similar indications of price slowing have been coming from the new home and existing home reports as did the March results for Case-Shiller. The results do raise the question whether housing demand may be slowing. April results for Case-Shiller will be posted next week.

Market Consensus Before Announcement
The FHFA house price index has been elevated but did come down in March, posting its slowest showing in more than three years with a monthly gain of only 0.1 percent. A 0.5 percent rise is the expectation for April though this rate too would be a bit soft for this index. Yet cooling may be a plus given the strength of prior gains, indicated by March's 6.7 annual rate of appreciation.

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.