House Price Index - Explained
What is a House Price Index?
Written by Jason Gordon
Updated at October 9th, 2021
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Table of Contents
What is a House Price Index?How Does the House Price Index Work?House Price Index, Fannie Mae, and Freddie MacHouse Price Index and Other Economic IndicatorsWhat is a House Price Index?
The House Price Index or HPI is a quarterly index that measures changes in single-family home prices in the United States. The HPI acts as an indicator of home pricing trends by measuring and collating average price changes of properties during resale or refinance. The Federal Housing Finance Agency (FHFA) publishes the HPI using data supplied by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
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How Does the House Price Index Work?
The House Price Index has its roots on transactions involving conventional and conforming mortgages purchased or securitized by either Fannie Mae or Freddie Mac. The properties involved in such transactions are typically single-family homes. Although comprehensive HPI reports are issued quarterly, there also exists a monthly report that has been available since March 2008. S&P/Case-Shiller Home Price Indices are other renowned repeat-sales house price indices. However, these indices differ from regular HPIs in that a typical Case-Shiller index only applies purchase prices, while an HPI also encompasses refinance appraisals.
House Price Index, Fannie Mae, and Freddie Mac
Transactions finalized by Fannie Mae form the basis for the HPI. The primary objective of Fannie Mae is to maintain cash flow in mortgage markets, which it does by acquiring and guaranteeing mortgages from lenders such as banking institutions. Both Fannie Mae and Freddie Mac are government-backed agencies. Freddie Mac acquires mortgages and then guarantees and securitizes them as mortgage-backed securities. Such mortgage-backed securities come with a good credit rating and when issued, bring in liquidity to the mortgage market. In addition, since it is a government body, Freddie Mac typically borrows money at very competitive interest rates.
House Price Index and Other Economic Indicators
There exist three primary categories of economic indicators. They are: 1. Leading indicators, 2. Coincident indicators, and 3. Lagging indicators. Some common economic indicators that gauge global economic trends are: Gross Domestic Product (GDP) Crude Oil Prices Consumer Price Index (CPI) House Price Index (HPI) Unemployment Rate Wage Share Economic indicators are vital fiscal instruments that facilitate monitoring of economic trends and stock market fluctuations.