What Is FHFA House Price Index (HPI)?

The FHFA House Price Index (HPI) is a comprehensive measure of the movement of single-family house prices in the United States. Compiled by the Federal Housing Finance Agency (FHFA), this index is based on data collected from loans held by government-sponsored enterprises (GSEs), and values are available for each state and metropolitan area.

The FHFA House Price Index (HPI) is a critical measure of the average price changes of single-family houses across the United States. This index, compiled by the Federal Housing Finance Agency (FHFA), is based on data derived from mortgage loans held or guaranteed by Government-Sponsored Enterprises (GSEs) such as Fannie Mae and Freddie Mac. The HPI provides vital insights into housing market trends on a national, state, and metropolitan area level.

Calculation Methodology

Data Sources

The FHFA HPI predominantly uses data from:

• Mortgage loans purchased or securitized by Fannie Mae and Freddie Mac.
• Repeat-sales method measuring changes in the price of the same property over time.
• Pertinent property attributes and transaction dates from public records.

Formula

The HPI calculation uses the following repeat-sales regression technique:

$$ P_{t} = \beta_0 + \beta_1 \cdot Month_i + \beta_2 \cdot Property_j + \epsilon_{t} $$

Where:

• \( P_t \) = House price at time t
• \( \beta_0, \beta_1, \beta_2 \) = Coefficients
• \( Month_i \) = Monthly indicator variable
• \( Property_j \) = Property-specific variable
• \( \epsilon_t \) = Error term

Types of Housing Price Indices

Purchase-Only Index

Includes only house price data for single-family properties that have been sold.

All Transactions Index

Incorporates purchase prices as well as appraisal values from refinancing.

Historical Context

The FHFA HPI was first introduced in 1995 and has since become a pillar in understanding the U.S. housing market. It draws comparisons to other house price indices, such as the S&P/Case-Shiller Index but differs in scope and data selection criteria.

Applications of the FHFA HPI

• Economic Analysis: Used by economists to track housing market health and identify trends over time.
• Policy Making: Helps in formulating housing policies and regulatory measures.
• Financial Markets: Aids investors by providing insights into real estate market performance.
• Real Estate Valuation: Serves as a benchmarking tool for appraisers and valuation experts.

Comparisons

FHFA HPI vs. S&P/Case-Shiller Index

• Coverage: The FHFA HPI includes data from all states and metropolitan areas, while the Case-Shiller covers select metropolitan areas.
• Data Source: FHFA uses data from GSE mortgages; Case-Shiller includes a broader range of home sales.
• Calculation Methodology: Both use repeat-sales regression techniques but apply different methodologies.

Related Terms

• Government-Sponsored Enterprise (GSE): Entities like Fannie Mae and Freddie Mac that facilitate secondary mortgage markets.
• Repeat-Sales Index: An index based on the price changes of the same property over multiple transactions.
• Refinancing: The process of revising a loan agreement to accommodate the borrower’s present financial status.

FAQs

What is the FHFA HPI used for?

The FHFA HPI is used for tracking house price changes, informing economic policies, and aiding real estate market analysis.

How often is the FHFA HPI updated?

The index is updated monthly and quarterly to provide the most current insights.

Why is the FHFA HPI considered reliable?

It is based on extensive and precise data from mortgage transactions overseen by the FHFA, ensuring accuracy and reliability.

Can the FHFA HPI predict future housing market trends?

While the HPI reflects past and current trends, it is often used in conjunction with other economic indicators to provide insights into potential future market conditions.

References

1. Federal Housing Finance Agency (FHFA). Official Website
2. “House Price Index.” In Investopedia, by Amir M. Investopedia
3. Case-Shiller Home Price Indices. (S&P Global Website)

Summary

The FHFA House Price Index (HPI) is a robust, reliable, and essential tool for analyzing the U.S. housing market. By leveraging comprehensive data from GSE-backed loans, the index provides insightful metrics to economists, policymakers, and stakeholders in the real estate and financial sectors. Whether evaluating historical data or informing future trends, the FHFA HPI stands as a cornerstone in the landscape of housing market indices.