What is the House Price Index (HPI)?

The House Price Index (HPI) tracks U.S. single-family home prices. This program tracks home price movements and estimates changes in mortgage defaults, prepayments, and housing affordability.

House Price Index: Understanding

The Federal Housing Finance Agency (FHFA) compiles the HPI using data from Fannie Mae and Freddie Mac.

The HPI measures conventional and conforming mortgage transactions on single-family residences. This weighted index tracks average price changes in repeat sales or refinancings on the same properties.

HPI publishes quarterly and monthly reports. Data comes from Fannie Mae and Freddie Mac mortgage purchases or securitizations.

Uses of the House Price Index

The HPI is one of several indicators investors use to track economic trends and stock market fluctuations.

Rising and falling housing values affect the economy. Price hikes usually boost confidence, employment, and consumer spending. Increased aggregate demand leads to increased GDP and economic growth.

When prices drop, the reverse happens. Companies gaining from real estate demand lay off personnel as consumer confidence erodes. Sometimes, this causes a recession.

HPI vs. S&P CoreLogic Case-Shiller Home Price Indexes

The HPI is one of many housing price indicators. Popular alternatives include the S&P CoreLogic Case-Shiller Home Price Indices.

These indices provide various findings due to data and measurement methods. The HPI weighs all homes equally, while the S&P CoreLogic Case-Shiller Home Price indexes are value-weighted.

The Case-Shiller indexes only consider purchase prices, whereas the all-transactions HPI also considers refinancing evaluations. HPI coverage is broader.

Freddie and Fannie

The HPI uses Fannie Mae and Freddie Mac mortgages to determine average price changes for houses sold or refinanced. The data excludes loans and mortgages from other sources, such as the U.S. Department of Veterans Affairs and the FHA.

Fannie Mae

Fannie Mae is a publicly listed government-sponsored enterprise (GSE) with a legislative charter. The corporation seeks mortgage market liquidity. Fannie Mae cannot create loans; therefore, it buys and guarantees mortgages from credit unions and local and national banks.

The FNMA creates a secondary market to increase mortgage market liquidity and enable homeownership for low-, moderate-, and middle-income Americans. Founded in 1938 during the Great Depression, Fannie Mae was part of the New Deal.

Freddie Mac

Fannie Mae, Freddie Mac, and FHLMC are GSEs. The company buys, guarantees, and securitizes mortgages to create mortgage-backed securities (MBS). The company offers liquid MBS with a credit rating similar to that of the U.S. Treasury.

Freddie Mac may borrow money at lower rates than other financial firms because of its U.S. government ties.

How Do You Know a House Is Affordable?

To evaluate if a property is worth a decent price, examine recent neighborhood sales, compare it to other houses for sale, talk to a real estate agent, and consider its appreciation value.

Should I pay the total price for a house?

A few criteria will determine whether you should offer the entire asking price on a house. Whether the property is in a buyer’s or seller’s market is essential. A seller’s market may require you to pay the entire asking price, whereas a buyer’s market may allow you to negotiate. When offering the whole asking price, add 1% to 3%.

What Lowers House Value?

Many factors lower a house’s value, including local highway building and other undesirable developments. Neighborhood foreclosures would lower prices and raise the risk of natural catastrophes and climate change. Rising mortgage rates make homes more costly, reducing demand and housing value.

The Verdict

The House Price Index (HPI) tracks U.S. single-family house prices. Monthly reports assess month-over-month and year-over-year changes. It is a key economic indicator of home affordability and the economy.

Conclusion

• The House Price Index tracks U.S. single-family home prices.
• The Federal Housing Finance Agency publishes it using monthly and quarterly data from Fannie Mae and Freddie Mac.
• The HPI is one of several indicators investors use to track economic trends and stock market fluctuations.