House Price Index (HPI)

House Price Index (HPI)

What is the Housing Price Index (HPI)?

The Home Price Index (LPI) is a broad measure of the evolution of single-family home prices in the United States. In addition to serving as an indicator of housing price trends, it also functions as an analytical tool to estimate changes in default rates, prepayments and the affordability of housing.

The Housing Price Index (HPI) is published by the Federal Housing Finance Agency (FHFA), using data provided by the Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, and Federal Home Loan Mortgage Corp. (FHLMC), commonly known as Freddie Mac.

Key points to remember

  • The Home Price Index (LPI) is a broad measure of the evolution of single-family home prices in the United States.
  • It is published by the Federal Housing Finance Agency (FHFA), using data provided by Fannie Mae and Freddie Mac.
  • The Federal Housing Finance Agency (FHFA) publishes its findings monthly and quarterly.
  • The Home Price Index (IPL) is one of the many economic indicators that investors use to keep the pulse of broader economic trends and potential changes in the stock market.

Understanding the Home Price Index (HPI)

The Housing Price Index (IPL) is based on transactions involving and conforming mortgages on single-family properties. It is a weighted repeat sales index, measuring the average price changes of repeat sales or refinancing on the same properties.

Data is compiled by examining mortgages purchased or securitized by Fannie Mae and Freddie Mac. The Housing Price Index (IPL) report is published quarterly – a monthly report has also been published regularly since March 2008.

Benefits of the Housing Price Index (HPI)

The Home Price Index (IPL) is one of the many economic indicators that investors use to keep the pulse of broader economic trends and potential changes in the stock market.

Rising and falling house prices can have big implications for the economy. Price increases generally create more jobs, boost confidence and lead to higher consumer spending. This paves the way for an increase in aggregate demand, stimulating gross domestic product (GDP) and overall economic growth.

When prices fall, the opposite tends to happen. Consumer confidence is eroded and many companies profiting from the demand for real estate are laying off staff. This can sometimes trigger an economic recession.

In June 2019, the Housing Price Index (IPL) reported that house prices from April 2020 to April 2019 rose 5.2%.

The Housing Price Index (HPI) vs. S & P / Case-Shiller Housing Price Indices

The Home Price Index (HPI) is not the only tool for tracking house prices. One of the best known alternatives is the S & P / Case-Shiller Housing Price Index.

They each use different data and measurement techniques and therefore produce varying results. For example, the house price index (HPI) weights all houses in the same way, while the S & P / Case-Shiller house price indexes are weighted by value.

In addition, while the Case-Shiller indices only use purchase prices, the Housing Price Index (HPI) for all transactions also includes refinancing valuations. The Housing Price Index (HPI) also offers broader coverage.

Special considerations

As already mentioned, the Housing Price Index (LPI) measures changes in the average price of homes that are sold or refinanced by examining mortgages purchased or guaranteed by Fannie Mae or Freddie Mac. It means loans and mortgages from other sources, such as the United States Department of Veterans Affairs and the Federal Housing Administration (FHA), are not included in its data.

Fannie Mae

Fannie Mae is a government sponsored company (GSE) which is listed on the public market but operates under a Congress charter. The company’s objective is to maintain the liquidity of the mortgage markets. To do this, it purchases and guarantees mortgages from real lenders, such as credit unions and local and national banks. Fannie Mae cannot make loans directly.

The FNMA increases the liquidity of the mortgage markets and facilitates home ownership for low, moderate and middle income Americans by creating a secondary market. Fannie Mae was created in 1938 during the Great Depression as part of the New Deal.

Freddie mac

Like Fannie Mae, Freddie Mac, or FHLMC, is also a GSE. He buys, guarantees and securitizes mortgages to form mortgage-backed securities. It then issues securities backed by liquid mortgages whose credit rating is generally close to that of US treasury bills.

Because of its ties to the United States government, Freddie Mac can borrow money at interest rates generally lower than those available to other financial institutions (FIs).

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