House Price Index (HPI)

What Is the House Price Index (HPI)?

The House Price Index (HPI) is a broad measure of the movement of single-family property prices in the United States. Beside filling in as a indicator of house price trends, it likewise works as a scientific device for assessing changes in the rates of mortgage defaults, prepayments, and housing affordability.

Understanding the House Price Index (HPI)

The HPI is sorted out by the Federal Housing Finance Agency (FHFA), utilizing data supplied by the Federal National Mortgage Association (FNMA), ordinarily known as Fannie Mae, and the Federal Home Loan Mortgage Corp. (FHLMC), regularly known as Freddie Mac.

17.5%

The rise in home prices year-over-year for November 2021, as reported by the FHFA on Jan. 25, 2022.

The HPI depends on transactions including conventional and conforming mortgages on single-family properties. It is a weighted repeat sales index, measuring average price changes in repeat sales or refinancings on similar properties.

A HPI report is distributed each quarter, albeit a month to month report has likewise been distributed routinely since March 2008. Data is incorporated by inspecting mortgages purchased or securitized by Fannie Mae and Freddie Mac.

How the House Price Index (HPI) Is Used

The HPI is one of numerous economic indicators that investors use to keep a heartbeat on broader economic trends and possible changes in the stock market.

The rise and fall of house prices can have big ramifications for the economy. Price increments generally make more positions, animate confidence and brief higher consumer spending. This prepares for greater aggregate demand, supporting gross domestic product (GDP) and overall economic growth.

At the point when prices fall, the inverse will in general occur. Consumer confidence is dissolved and the many companies benefitting from demand for real estate lay off staff. This can once in a while trigger an economic recession.

The House Price Index (HPI) versus the S&P CoreLogic Case-Shiller Home Price Indexes

The HPI isn't the main tracker of home prices. One of the most notable alternatives is the S&P CoreLogic Case-Shiller Home Price indexes.

These indexes use various data and measuring procedures and, thusly, produce fluctuating outcomes. For instance, the HPI weights all homes similarly, while the S&P CoreLogic Case-Shiller Home Price indexes are esteem weighted.

Moreover, while the Case-Shiller indexes just use purchase prices, the all-transactions HPI incorporates refinance appraisals too. The HPI additionally gives more extensive coverage.

Fannie Mae and Freddie Mac

As currently referenced, the HPI measures average price changes for homes that are sold or refinanced by seeing mortgages purchased or secured by Fannie Mae or Freddie Mac. That means loans and mortgages from different sources, for example, the United States Department of Veterans Affairs and the Federal Housing Administration (FHA), don't feature in its data.

Fannie Mae

Fannie Mae is a government-sponsored enterprise (GSE) that is listed on the public market yet operates under a congressional charter. The organization's goal is to keep mortgage markets liquid. It does this by purchasing and ensuring mortgages from the genuine lenders, like credit unions, and neighborhood and national banks — Fannie Mae can't start loans straightforwardly.

The FNMA grows the liquidity of mortgage markets and works with house purchasing for low-, moderate-, and middle-income Americans by making a secondary market. Fannie Mae was made in 1938 during the Great Depression as part of the New Deal.

Freddie Mac

Like Fannie Mae, Freddie Mac, or the FHLMC, is additionally a GSE. It purchases, guarantees, and securitizes mortgages to form mortgage-backed securities (MBS). It then issues liquid MBS that generally carry a credit rating close to that of U.S. Treasuries.

Given its association with the U.S. government, Freddie Mac can borrow money at interest rates that are generally lower than those accessible to other financial institutions.

Features

• The House Price Index (HPI) is a broad measure of the movement of single-family house prices in the United States.
• The HPI is one of numerous economic indicators that investors use to keep a heartbeat on broader economic trends and expected shifts in the stock market.
• It is distributed by the Federal Housing Finance Agency (FHFA), utilizing month to month and quarterly data supplied by Fannie Mae and Freddie Mac.